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Supreme Court's May Not Be Last Word On Arbitration
WASHINGTON (6/25/13)--The Supreme Court last week ruled in favor of giving financial services companies the right to include mandatory arbitration clauses in contracts with customers. The high court is set to discuss another case this Fall with potential ramifications for the Consumer Financial Protection Bureau and credit unions: A case addressing the constitutionality of President Barack Obama's recess appointments.

In the Arbitration case, a merchant that accepted American Express cards argued that the company was violating antitrust laws by charging rates up to 30% higher than fees for competing credit cards. However, the merchant lacked the funds to take on the case on its own, and a mandatory arbitration clause in the merchant's contract prevented it from joining with others in a class action suit.

The Supreme Court ruled 5-3 that under the Federal Arbitration Act, the merchant cannot challenge a class action waiver simply because the cost of pursuing individual legal action would be more expensive than the potential payout.

However, in this week's edition of the Credit Union National Association's Regulatory Advocacy Report, CUNA notes that the Supreme Court ruling may not be the final determination on this topic: The Dodd-Frank Act requires the CFPB to study the use of arbitration clauses in consumer financial services contracts. The bureau plans to survey 1,000 credit card holders on credit card agreements.

"Some in the financial services industry wonder if CFPB could prohibit mandatory arbitration agreements if the study shows that it would be in the public interest," CUNA Deputy General Counsel Mary Dunn wrote.

Another case that could impact the CFPB is set to be on the docket this fall. The court is scheduled to hear a case challenging President Barack Obama's recess appointment of three National Labor Relations Board members. A federal appeals court in January ruled that these appointments were unconstitutional.

Obama made the appointments on Jan. 4, the same time he appointed CFPB Director Richard Cordray.

The U.S. Constitution generally requires that senior officers of the government must be confirmed by the U.S. Senate, but when the Senate is in recess, the president can act alone by making a recess appointment.

Other items addressed in this week's Regulatory Advocacy Report include:

  • National Credit Union Administration board meeting results;
  • A  Financial Stability Oversight Council update;
  • Recent U.S. Small Business Administration actions;
  • CFPB remarks on mortgage rule implementation; and
  • CUNA's regulatory advocacy resource chart.
Employees or volunteers of CUNA and state credit union league member credit unions can sign up below to receive the Regulatory Advocacy Report.

The Regulatory Advocacy Report is archived on cuna.org.
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