DALLAS – The U.S. Chamber of Commerce, along with 17 other groups, are seeking to overturn a recent U.S. Consumer Financial Protection Bureau rule that prevents financial service providers from using arbitration as a means to settle disputes with consumers and avoid class-action litigation.
The complaint for declaratory and injunctive relief also names CFPB’s director, Richard Corday, as a defendant and was filed Sept. 29 in the U.S. District Court for Northern Texas.
The list of plaintiffs includes numerous Texas chambers and financial groups, such as the American Bankers Association.
According to the complaint, the Chamber and its allies are challenging the constitutionality and legality of the CFPB rule, which effectively precludes the use of arbitration agreements in disputes between consumers and providers of consumer financial products and services, instead rendering class-action litigation the default means of resolving such disputes.
“Congress enacted the strong and long-standing federal policy favoring arbitration almost 100 years ago in the Federal Arbitration Act,” the suit states. “The Supreme Court repeatedly has recognized and applied that policy. Consequently, the use of arbitration to resolve consumer disputes has been a common practice for decades.”
The Chamber argues that, unlike litigation, arbitration minimizes transaction costs and facilitates speedy and efficient dispute resolution, providing significant advantages to consumers and the public at large.
“Arbitration gives consumers the ability to bring claims that they could not realistically assert in court, including the small and individualized claims that they care the most about,” the suit states. “In contrast, class-action litigation is significantly less effective than arbitration in addressing consumer claims.
“By definition, class actions are not available to address individualized consumer complaints. And most of the class actions that are initiated lead to no or minimal recovery for absent class members.”
The Chamber believes the rule is invalid and should be set aside for four reasons:
- First, the rule is the product of, and is fatally infected by, the unconstitutional structure that Congress gave the CFPB when it created the Bureau in the Dodd-Frank Wall Street Reform And Consumer Protection Act (the Dodd-Frank Act);
- Second, the Rule violates the Administrative Procedure Act because the CFPB failed to observe procedures required by law when it adopted the conclusions of a deeply flawed study that improperly limited public participation, applied defective methodologies, misapprehended the relevant data, and failed to address key considerations;
- Third, the rule also violates the APA for the related reason that it runs counter to the record before the bureau and fails to take account of important aspects of the problem it purports to address, making it the very model of arbitrary and capricious agency action; and
- Fourth, the rule violates the Dodd-Frank Act because it fails to advance either the public interest or consumer welfare: it precludes the use of a dispute resolution mechanism that generally benefits consumers (arbitration) in favor of one that typically does not (class-action litigation).
“Because the final Arbitration Rule is neither ‘in the public interest’ nor ‘for the protection of consumers,’ the Rule departs from the mandate of the Dodd-Frank Act and is ‘not in accordance with law’ within the meaning of the Administrative
Procedure Act.
“For this reason, too, the Rule is contrary to law and should be vacated and set aside.”
The plaintiffs are represented by Charles Kelley, Andrew Pincus, Archis Parasharami and kevin Ranlett, all attorneys for Mayer Brown.
The U.S. Chamber owns the Record.
Cause No. 3:17-cv-02670-D