Puerto Rico Bankers Association against CFPB arbitration rule
SAN JUAN — The Puerto Rico Bankers Association (BA) came out against a federal Consumer Financial Protection Bureau (CFPB) arbitration rule that prohibits customers from waiving their right to participate in class-action lawsuits and limits the use of mandatory arbitration agreements in disputes involving financial products and services.
BA Executive Vice President Zoimé Álvarez Rubio said industries are moving toward organized and trustworthy processes out of court to promptly resolve claims, noting that “late justice is not justice.”
The arbitration rule makes claims levied by citizens more expensive as well as class-action lawsuits, which are already costly, she said.
“The U.S. House of Representatives recently passed a resolution repealing the arbitration rule of the [CFPB]. Now, it is up to the [U.S.] Senate to act and pass Joint Senate Resolution 47 so the action can become a reality. The [BA] is joining the efforts of the ABA [American Bankers Association] in stopping the arbitration rule,” Álvarez Rubio said in written remarks to Caribbean Business.
The ABA has been vocal in its opposition to the arbitration rule, noting that arbitration is a faster, cheaper and more effective way to resolve consumer disputes.
Banks of all sizes often include mandatory arbitration clauses in their credit card and deposit account agreements to manage the unpredictable costs of class-action lawsuits and ensure prompt resolution of disputes.
ABA President & CEO Rob Nichols pushed back against the final rule. “We’re disappointed that the CFPB has chosen to put class-action lawyers first—rather than consumers—with today’s final rule,” he said. “Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration.” He noted that the CFPB’s own research finds that arbitration is fair, as well as faster, more economical and more beneficial to consumers than class-action litigation.”
However, the CFPC says the rule is needed because arbitration clauses can limit a customer’s options if there is a legal issue with a financial service provider, and deters individuals from pursuing claims.
“Specifically, arbitration clauses can block people from bringing or joining group lawsuits, also known as ‘class-action lawsuits.’ No matter how many people are harmed by the same conduct, most arbitration clauses require people to bring claims individually against the company, outside the court system, before a private individual (an arbitrator). Companies know that people almost never spend the time or money to pursue relief when the amounts at stake are small, so few people do this,” the agency said, adding that the new rule will force companies to provide relief.
In related banking news, U.S. Sen. Mark Warner (D-Va.) has introduced S.B. 1642, an ABA-supported bipartisan bill clarifying that legally made bank loans may be resold and collected on by nonbank entities at the same interest rate. The bill would re-establish a legal precedent that had been in place prior to the 2015 Madden v. Midland Funding case, which involved a lawsuit brought by a borrower whose loan was sold by a national bank to a debt-buying company. If a bank sells a loan to a non-banking entity, it does not mean the act violates usury laws as long as the interest stays the same.