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This week, the House Financial Services Committee Subcommittee on Financial Institutions and Credit held a hearing on the CFPB's recent proposed rule on arbitration. We sent the committee a letter in advance of this hearing highlighting our concerns about the Bureau's proposal, and how it might affect the credit union-member relationship. We believe this proposal is inappropriate for credit unions, and could deprive consumers of an efficient dispute resolution process.
The CFPB’s proposal would proposal would effectively eliminate pre-dispute arbitration, and would require financial institutions to insert language into their arbitration agreements reflecting this limitation.
Many members of the committee were critical of the proposal. Rep. Randy Neugebauer (R-TX), chair of the subcommittee, stated “In my view, the proposed rule is a clear error in judgment by the bureau. It will perpetuate a gap by taking away a legal forum for low-income individuals and those with small and individualized claims. That outcome would certainly not be for the protection of consumers.”
Rep. Keith Rothfus (R-Pa.) said he was also concerned about lower-income consumers, since the CFPB’s proposal could remove one method by which they could obtain redress.
“I’m particularly concerned about the practical impact that the bureau’s proposed rule would have on consumers, both those trying to vindicate claims and those who are simply trying to obtain products and services in the marketplace. With respect to the former, I worry that contrary to what the bureau claims, the proposed rule will disproportionally harm lower-income consumers by eliminating, rather than enhancing, avenues of resolution by increasing the costs to bring a complaint.”
Rep. Ed Royce's (R-CA) questioning focused specifically on the proposal's impact on small financial institutions: "Community financial institutions like community banks and credit unions have to maintain strong personal relationships with customers, in a time of unprecedented regulatory burden, their success depends on this," he said. He then questioned the witnesses about how arbitration can lead to better relationships between consumers and their financial institutions, and what might happen when the CFPB opens up these institutions to class action lawsuits. Rep. Royce also submitted our arbitration letter to the Congressional Record.
Our hope is that the increasing attention from Congress and advocacy groups will lead to a final arbitration rule that does not significantly alter the existing healthy relationship between credit unions and their members.
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Credit Union National Association is the most influential financial services trade association and the only national association that advocates on behalf of all of America's credit unions. We work tirelessly to protect your best interests in Washington and all 50 states. We fuel your professional growth at every level and champion the credit union story at every turn.
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