The Competitive Enterprise Institute on Monday submitted public comments with the federal Consumer Financial Protection Bureau (CFPB) opposing a proposed rule to limit the option of using binding arbitration to resolve disputes over financial products, like credit agreements, credit cards, bank accounts, and certain loans.
The comments, submitted by CEI experts John Berlau and Iain Murray, lay out several main objections to the rule: the negative impact on ordinary Americans in terms of cost-effective conflict resolution and access to the sharing economy, as well as the needless financial windfall paid by consumers to wealthy attorneys.
“The CFPB arbitration rule would take away the rights of consumers and financial professionals to resolve disputes by binding arbitration instead of the often-cumbersome and ineffective process of class action lawsuits,” said Murray.
“The rule would have a devastating effect on the new sharing economy – financial innovations like peer-to-peer lending,” said Berlau. “Ordinary Americans are eager to lend to other consumers and participate in the new economy, but under the proposed CFPB rule, that will slow and could grind to a halt if they must hire a lawyer to resolve any type of grievance.”
Instead of a ban on arbitration, the CFPB could take other steps to help consumers, such as making the terms of arbitration clauses opt-out, the CEI comments explain.
The era of modern arbitration, which is used to resolve disputes for which a consumer filing an individual lawsuit would be impractical and costly, dates back many decades, to the 1925 Federal Arbitration Act.