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This week, at a field hearing in Denver, the CFPB took a major step toward establishing a regulation restricting the use of forced arbitration clauses in consumer financial contracts. At the hearing, CFPB director Richard Cordray stated in his remarks:
"Companies use this clause, in particular, to block class action lawsuits. They thus provide themselves with a free pass from being held accountable by their customers. That free pass is secured by making sure their customers cannot group together to seek relief for wrongdoing."
At the hearing (a video archive should be posted here in the next few days), the CFPB announced an outline or framework for a proposed rule that would prohibit the inclusion of class action bans in arbitration clauses and restore consumer rights to go to court. While this is a major step, the proposal does not fully bar the use of arbitration for individual claims. As we and others pointed out, we hope the final rule closes the door completely on all uses of forced arbitration. As Danny Katz, director of Colorado PIRG, testified at the hearing:
"Consumers should never have to give up their rights– just to do the everyday things in their lives like open a bank account or take out an auto loan or student loan."
Meanwhile, on Capitol Hill, powerful bank interests escalated their campaign to defund and defang the bureau, because it works for consumers, not them. Last week, the American Bankers Association and other major trade groups representing Wall Street and other financial interests revealed, in an op-ed in The Hill newspaper, that, in fact, they were the driving force behind intensified Congressional efforts to pass HR 1266 (Neugebauer-TX) -- to eliminate the Bureau's single director and replace him with a highly-politicized 5 member Commission. This, of course, was not "man bites dog" news to me. But the op-ed also revealed that their campaign to kill the CFPB is fueled by misrepresentations and untruths. It's clear that the powerful special interests are just tired of having -- even if it is only 4 years old -- a regulator that is not under their control. In their op-ed column, they claim that they actually want to strengthen the bureau's independence from the "political whims" of a different White House. Actually, they want to make sure that they can manipulate an already-politicized nominations process and appoint 5 lapdog commissioners to a weakened bureau.
Worse, their op-ed revealed that they are not above misconstruing and misrepresenting the long-held positions of the founders of the CFPB, Senator Elizabeth Warren (MA) (then an advisor to the President), former Representative Barney Frank (MA) (the Frank of the Dodd-Frank Wall Street Reform and Consumer Protection Act), and former Representative Brad Miller (NC), chief sponsor of the original bill that developed into the CFPB. They claim these leaders always wanted a commission, not a single-director. Click the highlighted names to see that Rep. Maxine Waters, ranking member of the House Financial Services Committee, published corrections to that doctored record.
Our group letter to the committee opposing HR 1266 rebuts the other false claims made in the op-ed, including that virtually all agencies are commissions; some are and some aren't. The oldest and most powerful bank regulator, the OCC, founded in 1864, is run by a single director.
While consumer protection opponents prevailed in passing HR 1266 out of committee last week, they failed in their effort to steamroll more Democrats into jumping on board, once it became clear that the bill's train was being driven by Wall Street lobbyists. Two conservative Democrats, already co-sponsors, did vote for the bill. Over at his Newsweek blog, our colleague, Jim Lardner of Americans for Financial Reform, has more on the fight to defend the CFPB from the "Real Wolves of Wall Street."
We expect more attacks on the CFPB's independence and funding throughout the fall. Not only will there be a second fight on this bill when leadership moves it to the House floor, but Industry is also demanding that rollbacks to CFPB and other agencies be attached as "riders" on the budget proposal that will be negotiated over the next few months (government funding authority expires on December 11). We will keep you informed.
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