Removing Barriers Blog

CUNA Sends Letter to House in Advance of Hearing on CFPB Arbitration Proposal
Posted May 17, 2016 by Chandler Schuette

Today, we wrote a letter to the House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit, in advance of its hearing on the CFPB's recently proposed arbitration rule, which is scheduled for tomorrow. We share the Subcommittee's concerns about whether this proposed rule is actually in the best interest of consumers.  

Our letter stressed that as the only consumer-owned cooperatives in the financial marketplace, credit unions have a tradition of protecting their members’ interests, and in most instances are able to amicably resolve any disputes that arise. We also highlighted why the structure of credit unions, as opposed to larger financial institutions, makes the arbitration proposal inappropriate for credit unions. 

The letter also noted that arbitration can be a helpful alternative for credit unions and their members to resolve differences in a fair, efficient, timely, and cost-effective manner in the rare instance that they cannot come to an agreement with members. 

The CFPB’s arbitration proposal, while not an explicit ban, is a de facto ban on the effectiveness of the arbitration process.  Removing a tool from the dispute resolution toolbox forces credit union members to bypass an efficient and cost-effective resolution process, and forces them straight to the courthouse.  

This is troublesome for credit unions, in particular, for at least two reasons.  First, it is hard to imagine a case in which class action litigation against a credit union would be a reasonable course of action for credit union members, since it would put them in a position of essentially suing themselves. Second, in the rare situation that a group of credit union members feels a credit union is in the wrong, the group, as member-owners, already have direct recourse to remove the credit union's Board of Directors and management using their one-member, one-vote membership powers.   

This arbitration proposal comes in the wake of several recent regulatory changes by the CFPB and other regulators that have made financial institutions more vulnerable than ever to class-action lawsuits.  The letter questions whether straining credit union resources benefits consumers, and suggests that it does not. 

We are also concerned about the CFPB's proposed requirement that companies using arbitration clauses must submit claims, awards, and other related materials to the CFPB for monitoring and publication on its website. While such requirements would undoubtedly be helpful for trial attorneys, we do not believe this database provides significant value for credit union members. 

Credit unions have a long history of consumer protection, which includes seeking to eliminate regulatory burdens that threaten to make the products and services they offer more expensive or less available. We stressed to the committee that we are very concerned the CFPB's arbitration proposal could do just that. 

We are waiting for publication of the proposed rule in the federal register, and will be seeking feedback from credit unions about  the CFPB's arbitration proposal. We also released this statement in response to the proposed rule.