The CFPB Wants to Create an Arbitration Database. Companies Will Hate That.
When the Consumer Financial Protection Bureau expanded its public database to include narratives of negative customer experiences, banks such as…
July 11, 2017 at 05:10 PM
5 minute read
The original version of this story was published on Law.com
Now, a new public database could be going up online as part of the agency's newly finalized arbitration rule—if the regulation survives anticipated challenges on Capitol Hill and in the courts.
The CFPB's new rule, which calls for restricting arbitration agreements that block consumers from filing class actions, immediately drew criticism from the financial industry. The U.S. Chamber of Commerce has argued the rule would effectively shut down a “cheaper and faster” form of dispute resolution for consumers, as companies would no longer subsidize arbitration if they were still faced with the cost of defending against class actions.
Perhaps because of that dim view of the future of arbitration, another portion of the CFPB rule has drawn less attention: A requirement that companies give the agency records about individual arbitrations—including any awards—that would still be allowed under the new regulation. The CFPB plans to publish those records, with “appropriate redactions,” on its website, according to the 775-page final rule published Monday.
CFPB Director Richard Cordray said the publication of the records “will promote transparency and give consumers, providers and other regulators more insight into how arbitration works.” Cordray said financial services providers will scrub the records of personal information and the CFPB would begin posting them online beginning in July 2019—a full 12 months after his five-year term is set to expire.
Federal agency databases have come under threat in the Trump administration, and the CFPB's proposal would meet similar resistance.
The U.S. Labor Department's Occupational Safety and Health Administration this year suspendedan Obama-era rule that required companies to electronically report their injury and illness records so that they could be made available to the public. The U.S. Treasury Department under Secretary Steven Mnuchin has called for shutting down public access to the CFPB's consumer complaint database, arguing it lacks “appropriate safeguards.” Instead, the agency suggested the database be made available only to state and federal agencies.
In the rule that the CFPB published Monday, the agency noted several industry commenters that said the publication of arbitration records would lead “plaintiff's attorneys to bring more frivolous litigation generally.” The Kansas-based Heartland Credit Union Association argued the publication of collected arbitration records would “serve the litigators in formulating more class actions settlements.”
“In addition, a credit union's reputational risk is at stake,” wrote Brad Douglas, president and CEO of the Heartland Credit Union Association. “Making this information public could negatively damage their reputation when not warranted.”
Other commenters shared that fear of reputational harm. Acknowledging that concern, the CFPB said it was requiring companies to submit answers as well as arbitral counterclaims “to balance out one-sided accounts and mitigate any perceived reputational risk.”
According to the CFPB's rule, another commenter expressed concern that companies “may face more scrutiny from the bureau than others” after losing in arbitration.
In deciding to publicize the records, including awards issued in arbitration, the CFPB found support from Democratic state attorneys general and scholars who had advocated for making the information available online.
Massachusetts Attorney General Maura Healey, along with her peers in 18 other states, encouraged the CFPB in an August 2016 letter to “publish this valuable information on its website, making it available to the public, so that both government enforcement agencies and consumers can analyze and benefit from the results.”
The CFPB also said the publication of the records would help academic researchers with their analyses of arbitration.
“In contrast to commenters that viewed the possibility of increased scrutiny by regulators or plaintiff's attorneys as a negative outcome from the monitoring rule, the bureau believes that the increased transparency will tend to increase consumers' ability to seek redress for legal violations, providers' incentives for compliance and general public confidence in the orderly operation of the markets,” the CFPB said.
Related Articles:
|- CFPB, Testing Trump and Republicans, Moves to Restrict Forced Arbitration
- CFPB Faces 'Rock and a Hard Place' in Pushing Arbitration Rule
- CFPB Flooded With Thousands of Comments Over Arbitration Rule
- The Trump Justice Department's Aversion to Class Actions Will Have Wide Impact
- Donald Trump's Richard Cordray Problem
C. Ryan Barber, based in Washington, covers government affairs and regulatory compliance. Contact him at [email protected]. On Twitter: @cryanbarber
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