By: The Editorial Board
Consumer Financial Protection Bureau chief Richard Cordray has been on a regulatory tear as he prepares to run for Governor in Ohio. But many of the Obama appointee’s midnight rule-makings need not see the light of day—for instance, his arbitrary ban on mandatory arbitration that the House voted to repeal on Tuesday.
The Congressional Review Act lets a majority of both chambers rescind a final agency rule issued in the past 60 legislative days. The 231-190 House vote overturns the CFPB’s new rule prohibiting class-action waivers in virtually all financial consumer-service agreements. Twenty-four GOP Senators have introduced a similar resolution.
Mr. Cordray said the ban would protect consumers, but his own agency’s study suggests otherwise. Consumers who prevailed in arbitration recovered on average $5,389 while those who joined class actions received $32. Trial lawyers on average raked in $1 million.
Most claims can’t be litigated on a class basis—though trial attorneys try—and arbitration provides an affordable and expeditious alternative. Companies typically pick up most if not all of the filing, administrative and arbitrator costs. Consumers usually obtain relief within two months, while class actions typically take years to resolve.
The rule would cause many firms to stop using arbitration since they would have to spend more defending class actions. The CFPB estimates that financial companies would spend between $2.62 billion and $5.23 billion over the next five years—much of which would go to attorneys—to defend some 6,000 class actions.
Ohio Senator Sherrod Brown, another plaintiff-bar favorite, cites Wells Fargo , which was found to have opened millions of unauthorized accounts in the names of its customers. But Wells Fargo agreed to settle the case on a class basis for $142 million—twice as much as estimated consumer out-of-pocket losses—because arbitrating individual disputes could have cost much more. The bank also paid $185 million to regulators and agreed to refund fees for unauthorized accounts.
Mr. Cordray wants to build a nationwide plaintiff-lawyer fund-raising base for his Ohio campaign. And he may hope that a few Republican Senators like South Carolina’s Lindsey Graham will sink the repeal resolution for their trial-bar campaign donors. But if Republicans stand together on repeal, the CFPB would be prohibited from ever issuing a similar rule. Republicans can strike a blow for the rule of law and against a major progressive cash source for Democrats with a single vote.