Mandatory arbitration agreements are a win-win for consumers and business. Consumers often get low-cost settlements on their complaints while business avoid costly litigation that enriches trial lawyers while doing little to help their customers. Notwithstanding the benefits from both sides of the negotiating table, the Consumer Financial Protection Bureau (CFPB), despite warnings from Congress, just issued new regulations barring mandatory arbitration agreements for class action lawsuits. The clear winners in the equation are the trial lawyers, many of whom bill millions in fees while collecting nickels and dimes for their clients. This is another example of a rogue government agency that Congress and the president must reign in.
Since its creation in 2010, the CFPB has been criticized as an unconstitutional federal agency specifically designed to prevent Congress from critically overseeing the agency. Tucked in the bowels of the Federal Reserve, the CFPB has become the fiefdom of former Ohio Attorney General Richard Cordray. The bureau has been accused to wasting taxpayer dollars, a cesspool of discrimination, and a turnstile for employees who cash out in the private sector.
A federal court recently ruled that the bureau’s design was unconstitutional. The court found that the director of the CFPB “enjoys significantly more unilateral power than any single member of any other independent agency” and that he is the “single most powerful official in the entire United States Government.” The court went on to say that the CFPB’s structure “represents a gross departure from settled historical practice” in regards to the “unilateral power” that has been concentrated in the CFPB’s director.
One would think that the head of an agency found to violate the Constitution would cease issuing rules until a structure was found to that was legal. One would be wrong. Despite violating the core structure of our government, Cordray pressed forth with his arbitration rule even while acknowledging the rule will cost 53,000 financial services companies that currently use arbitration agreements between $2.62 billion and $5.23 billion over the next five years to defend an additional 6,042 class actions that will be brought by plaintiffs.
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So who wins? Cordray’s old friends – the trial lawyers.
Mandatory arbitration agreements limiting class action lawsuits have prevented thousands, if not tens of thousands, of frivolous lawsuits. Class actions lawsuits have become a racket. There are hundreds of examples where the sole beneficiaries of these suits are the lawyers who bring them, not the clients they represent.
By opening a flood of class action lawsuits – over 6,000 by their own estimation – Cordray is rewarding his long-time friends in the trial bar. As Attorney General of Ohio, Cordray got in hot water when he deputized plaintiff bar firms to sue the state pension funds. The attorneys donated money to the Ohio Democratic Party, who then turn around and funded Cordray’s race to the tune of $830,000.
Congress is, thankfully, is on the case. Sen. [score]Bob Corker[/score] (R-Tenn.), as well as, Sen. [score]Tom Cotton[/score] (R-Ark.) have declared their intention to use the Congressional Review Act to reverse the CFPB rule. This is a step in the right direction.
President Trump should also clean the swamp by firing Cordray. As Trump makes it a priority to reduce government red-tape and regulations on the American people, Cordray, is determined to make it harder for the president to achieve his objective while helping his friends at the trial bar enrich themselves at the same time. In Washington, D.C., there can only be one sheriff. It’s time for both this rule and Mr. Cordray to get out of Dodge.