One fed says keeping arbitration rule will spike credit rates, another fed says that’s “demonstrably bogus”

In case you were wondering, the fight over the Consumer Financial Protection Bureau’s rules on forced arbitration is still very alive and is just as exciting as it ever.

(In case you need a refresher, the Consumer Financial Protection Bureau adopted a rule this summer that bars companies from, in the words of its director, “using arbitration clauses to deny groups of consumers the ability to pursue their legal rights in court.” The rule basically ensures people can take companies to court in class-action lawsuits. The GOP and some in the business world (namely those big companies) would like to repeal it. The House has already done so and the clock’s ticking on the Senate.)

[Related: Looming Senate repeal of forced arbitration rule would hit Alaskans hardest]

The latest turn in this fight over a rule is a fight between Consumer Financial Protection Bureau Director Richard Cordray (an Obama appointee) and Keith Noreika, the acting comptroller of currency who Democrats say is holding the job illegally.

As the time is running out for the Senate to take action, Noreika penned an alarming case for why the rule should be repealed. He argued that without the ability to prevent consumers from taking their claims to court, the cost of credit will spike and the average consumers credit card rate will go up by 3.5 percent.

“That means a consumer, living week to week, could see credit card rates jump from an average 12.5 percent to nearly 16 percent,” the former banker wrote. “The CFPB failed to disclose that observed effect that was apparent in its data. For an agency that demands transparency from the companies it supervises, the omission is an appalling abdication of the bureau’s responsibility to consumers.”

Cordray fired back in a column this morning.

“Now (Noreika) presents a new claim that the rule will impose high costs, in the form of a 3.43 percent increase in credit card interest rates, on consumers. This claim is demonstrably bogus,” he wrote, adding a lengthy technical explanation of why Noreika and his buddies got it wrong. “In laymen’s terms, this claim is the equivalent of flipping a coin twice, having both come up heads, and declaring that the coin is ‘very likely’ to have heads on both sides. It does not hold water.”

Cordray also notes that a handful of credit card companies and banks stopped using forced arbitration clauses in 2009 due to a settlement. No corresponding spike in interest rates was found, he said.

“A tremendous effort is being made to shift the focus away from the large companies most affected by the arbitration rule. But recent scandals make it hard to defend denying justice and relief to groups of people who have been wronged,” he wrote. “Why should Wells Fargo be able to block groups of customers from suing over fake accounts? Why should Equifax be able to force people to surrender their legal rights when the company put their personal information at risk?”

The process ahead

The CFPB rule was finalized on July 10, 2017, giving each chamber of Congress 60 days in session to repeal the measure. The House has already passed a measure (Rep. Don Young voted in favor of repealing the rule). The Senate has about 15 days in session left to repeal the rule.

Alaska’s Sen. Dan Sullivan has put his support on the bill in the form of a co-sponsorship. Sen. Lisa Murkowski hasn’t declared a position on the measure.

Alaskans join suit against Equifax

Two Alaska residents joined the class action lawsuit against credit monitoring company Equifax, which was recently revealed to have suffered a massive data breach affecting more than 143 Americans.

AARP opposition

The AARP has also come out in support of the CFPB rule and against the congressional repeal effort. In a letter, the group argues forced arbitration undermines the ability of consumers to pursue legal recourse against big companies. It argues the aribitration rule and the bans on class action lawsuits are used by those companies to “insulate themselves from accountability for consumer harm.”

[PDF: Read the AARP letter on arbitration]

“Over the years, AARP has elaborated in numerous comments filed with the CFPB that predispute mandatory arbitration harms consumers. The CFPB’s rule makes significant progress in restoring consumers’ access to remedies that had been restricted by the widespread use of forced arbitration clauses in contracts over which consumers have no ability to negotiate or protect themselves”

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