It's an unusually public clash between two agencies and the Trump administration, the Treasury Department, led by Treasury Secretary Stephen Manuchin, appointed by President Trump, versus the Consumer Financial Protection Bureau led by Richard Cordray, appointed by former President Barack Obama. In a report issued Monday, the Treasury Department blasted a rule passed in July by the CFPB that makes it much easier for consumers to sue banks and class action lawsuits.
In proposing the rule, Cordrey said that mandatory arbitration clauses forced consumers to resolve disputes with financial companies outside the courts, and this rule would give consumers that choice. That would prevent mandatory arbitration clauses from imposing legal lockouts to deny groups of customers the right to pursue justice and secure meaningful relief from undoing. Joining me are Mike Consul, a fellow with the Roosevelt Institute, and Jim Copeland, legal director
at the Manhattan Institute. Jim, we've seen agency is that the Trump administration on different sides of Supreme Court cases, second Circuit cases. Is this any different? Um? I don't think it's that different. I mean, what what's underlying the dispute here is you've got Obama administration holdovers in the
Consumer Financial Protection Bureau. And that's because when the Democrats are running Congress and past the Dot Frank Financial Reform Bill in two thousand and ten, they basically isolated this agency from funding by Congress it's funded through the Federal Reserve, and created a director structure where the director is not
replaceable by a new administration by the President. And so you've had the Obama administration holdovers fighting for their rule, and you've had the Trump administration individuals in other agencies saying, well, no hold element, this rule doesn't make sense. Mike. Let's talk about the rule now. Consumers may not notice the fine print requiring arbitration that's buried into millions of contracts with credit card companies, bang rental car companies, etcetera. Tell
us more about this mandatory arbitration clause. Sure. So, Um, there's been a real revolution in the way a lot of consumer contracts of work, both in the financial sector, which is what this Consumer Financial Protection Bureau rules impact, and broader across labor contracts and other other types of contracts that basically force people who have a grievance into a out of the courts and into a private setting
with an arbiter who can have binding agreements. Many clauses forced those UH binding agreements to be confidential, and thus it takes an option away from consumers to have access to the courts for things that are very personal, very important to them. We saw big abuse scandals with Wells Fargo with three and a half million fraudulent UM accounts open for people, and people were forced into arbitration basically
for things they didn't even have a hand in. And we saw the same thing with Equifax with a major data breach scandal. So I think we finally hit a point um. You know, there's a general awareness of this and so much that Dot Frank actually test the CFPB to do this study over course of years, which it did and then write a rule as necessary. So Mike, tell me about Jim. What does the Treasury Department's reports say about the proposed rule by the CFPB. What's wrong
with it? Well, basically what they say is when you look at the actual data the CFPB is looking at it, it's it shows that it's going to hurt consumers. UH. Most likely, and and of course these things are uncertain, and these sort of talking points. I've got a piece on this and Investor's Business DAYA today the talking points or other guests is is using the same ones as Elizabeth Warrens using really missed the point. I mean, Equifax
does have an arbitration clause in its contracts. Equifax, as as I said, it's going to waive it in this case. But if you look at the data breach consumer class actions that have actually been settled, and we've had them at Anthem, we've had them at a variety of companies, they've all paid out less than a dollar a person once you take the lawyer fees out of it for the members of the class. So it's not a realistic
way for consumers to get a recovery. Arbitration. On the other hand, as as the CFPPS own study shows, on average, pays out about five thousand dollars for a successful claim, So so an individual can get a recovery there. They're not going to get a lawyer to take an individual case for five thousand dollars. It's just not enough money. But they can get a recovery through arbitration. Otherwise, they're
at the mercy of the class action bar. And and that's really why the CFPP has pushed this rule, and why the Democrats and Congress have been pushing the rule. It's because they get a lot of money from the
point ofs bar for class action litigation. We're talking about a rule the Consumer Financial Protection Board issued that makes it much easier for customers to sue their banks and others in class action lawsuits, and the opposition to it in by the Treasury Department in a report issued yesterday. My guests or my consul fellow with the Roosevelt Institute and Jim Copeland, legal director at the Manhattan Institute, Mike consumer advocates like this rule. Tell me about it and
give me your reaction to what Jim said. Sure, well, in general, you don't harm consumers by giving them more choices. For consumers who still want arbitration because they want the cleanness of it, the quickness of it, any number of reasons, they can still do it. And the arbitration process itself will evolve because there's now competition there. And you don't harm citizens by giving them rights in courts. You harm them by taking away their rights. Um, you know, uh,
industry is doing a lot of really exaggerated effects. There's a lot of reasonable debate to be had about what the impact of this rule will be. In the CFPB
did extensive cost benefit analysis. UM. The Treasury report is in the context of the of another regulator who is appointed by Trump, the O c C, pushing back against this rule and arguing that when increased credit card rates four cent and you other guys said that consumers will get five thousand times the amount of returns in a private arbitration versus a court, which if the returns are five thousand percent high under arbitration. It's really not sure
to me why industry is opposing this so much. UM. These estimates are just outside the realms of reasonable analysis, and they involve all kinds of they're not really random effects. Credit unions don't use this. This is really in effect of the big banks. And we've seen case studies where firms are have this ability taken away from them as part of the settlement, and we don't see any kind of rapid credit movement. So at the end, this gives
consumers another choice, and I think that's important for them. Jim, isn't business and financial firms inarticular, aren't they usually opposed to any kinds of class actions? Will? Absolutely, and the reason is that the class action lawsuits are principally about benefiting the lawyers, not the members of the class. But but I just want to say that virtually everything Mike said there's faults. Uh. The five thousand dollars average recovery
in an arbitration isn't something I made up. It's something from the cftb's own report. The four percent is between three and four percentage point. And to increase in the total cost of credit for for for for customers isn't something I made up. It's derived from the very study that the CFPB resolves on and what they try to say as well, this shows there'll be no actual impact.
When we looked at the two thousand nine settlement, the thing he was talking about, what they said is they couldn't show that there would be an impact with nine percent confidence, but with eight percent confidence they could show that there would be an increase between three and four percent in terms of the interest rates. Then it's hard to know exactly how this will take out. It's part of it could be in fees, part of it could be an interest rates. Part of it could be in
denying credit to consumers. But make no mistake, UH, consumers are going to be harmed, UH if in fact, they cost more to the banks to service them by transferring money from banks to lawyers, which is what these class action lawsuits are about, and the banks are going to recover that somehow. That's the point. I mean, clearly, you can get consumer advocates who are funded by the plaintiffs bar to say, oh, this is great for consumers, But to say that this creates more choice for consumers isn't
really what's going to happen. These arbitration clauses are quite generous. The reason they're quite generous is because they foreclosed class action lawsuits. And if you force the banks to permit class action lawsuits notwithstanding these arbitration agreements, the arbitration agreements
are going to change to consumers detriment. Well, I do want to note that the Treasury Department reports said financial firms would face extraordinary costs of more than five hundred million dollars in additional legal fees and one point seven billion in settlements to resolve three thousand more class action lawsuits. Attorneys will collect more than one million on average from cases. Well, consumers will receive just thirty two dollars according to the
Treasury Department report. Mike, let's talk about what's happening in Congress right now to try to stop this rule. Absolutely just as a quick thing. That's not how peace statistics work. The percent is not like extrapitable, So, I mean, there's reasonable debates about these studies. UM. The big thing that's giving this an impetus is that because of various congressional rules that I don't know if necessarily worth getting into. UM, Congress and particularly the Senate can repeal this rule with
a simple majority. It's already past the House a repeal of this rule because of the way I'm rules that pass in times of presidential transfers. UM, it's not clear if it will pass the Senate. UM, it's up in the air. You know, there's rumors as early as a vote today. UM, there's a time ticking on it. I think essentially in mid November, depending on how they massage it. They'll have to have chosen whether or not they're going
to do this. And the Senate is obviously very concerned about getting tax reform into some sort of coherent in shape for the Trump administration. So, um, you know, there's there's a debate, much like healthcare, about whether or not they can get fifty votes to repeal this. Jim, do you believe they can get fifty votes? So? I don't know. I mean I said that I agree with Michael on this. The clock is ticking and it's not clear. It's not clear what's gonna happen in the Senate. There's fifty two
Republicans in the Senate. Some of those, like Lindsay Graham of South Carolina, are received generous donations from the plaintiffs bar as do of course, the Democratic Senate leadership. So it's going to be a tight uh. I think fight
on this. But but but I hope that the Republicans in the Senate stand up with the administration and the Republicans in the House and do the right thing here and not let the abomb administration sort of push this pro plaintiffs lawyer measure through without stopping at what they have the power to do. All right, we have about thirty seconds left, Mike, you'll have the last word. Um, you know, I think that's real a good rule. I
think it was well planned. I think there's a lot of attacks about the procedures, but it's been in play for several years. It was mandated that they study this. And to me, the most interesting person who says that we should keep this rule as Gretchen Carlson, the former Fox host who was forced through mandatory arbitration into not being able to talk about her sexual harassment. Um, that's not that's that's not a financial contract. But it shows
us really the detrimental fact. He's mandatory rules to stop you. There's that's Mike Counsil he's a fellow at the Roosevelt Institute and Jim Copeland, legal director at the Manhattan Institute. Coming up on Bloomberg Law. He's a star of the legal profession with more clients than we can handle. We're going to talk about trial lawyer David Boys, who's stepping out of the spotlight so his successors can carry on his firm's work.