Upon closer inspection, the U.S. Treasury claims that “The Rule will impose extraordinary costs, the vast majority of consumer class action deliver zero relief to the punitive members of the class” and the rule “will affect a large wealth transfer to plaintiffs’ attorneys,” as well as other claims.
In the report’s conclusion, it states “An agency implementing such a drastic shift in policy should typically subject its rulemaking to the rigors of cost-benefit analysis and require incremental efficiency justification for more stringent regulations.” The Treasury claims the rule fails to account for the costs of class action litigation or prove the benefits of arbitration.
According to an interview with Reuters, Sam Gilford, agency spokesman of the CFPB said the U.S. Treasury’s claims have been previously refuted. “The report by the Treasury Department rehashes industry arguments that were analyzed in depth” he said. “Banks, credit unions, and other companies file class action lawsuits to pursue justice when they are harmed as a group, and our rule restores consumers’ right to do the same.”
Among the report’s claims, the Bureau’s estimates do not take into account the expected increases in state court litigation and businesses who find themselves in said litigations are not likely to absorb the added financial burden. “The Office of the Comptroller of the Currency recently reported that the Bureau’s own data show that the Rule’s costs will very likely be passed through to consumers in the form of higher borrowing costs for credit card users, among other burdens.”
According to the analysis, 13 percent of consumer class action lawsuits filed result in class-wide recovery, leaving 87 percent of cases with either no plaintiff or named plaintiffs receiving relief.
It’s worth noting that the Treasury stated that if a credible estimate of the costs associated with the Rule are made, then the Bureau could create an accurate benefits estimate, and therefore a more concrete basis for determining if the Rule is “economically efficiency-enhancing.”
One approach recommended by the Treasury was to collect data by “comparing historic consumer complaint (or consumer action rates) among providers with and without pre-dispute arbitration clauses in their contracts with consumers.”
The rule abolishing “mandatory arbitration clauses” was first released on July 10 and is set to take effect in spring 2019, according to Reuters. To see the full analysis from the Treasury, click here.