Speaker 1: It's an unusually public clash between two agencies and the
Speaker 1: Trump administration, the Treasury Department, led by Treasury Secretary Stephen Manuchin,
Speaker 1: appointed by President Trump, versus the Consumer Financial Protection Bureau
Speaker 1: led by Richard Cordray, appointed by former President Barack Obama.
Speaker 1: In a report issued Monday, the Treasury Department blasted a
Speaker 1: rule passed in July by the CFPB that makes it
Speaker 1: much easier for consumers to sue banks and class action lawsuits.
Speaker 1: In proposing the rule, Cordrey said that mandatory arbitration clauses
Speaker 1: forced consumers to resolve disputes with financial companies outside the courts,
Speaker 1: and this rule would give consumers that choice. That would
Speaker 1: prevent mandatory arbitration clauses from imposing legal lockouts to deny
Speaker 1: groups of customers the right to pursue justice and secure
Speaker 1: meaningful relief from undoing. Joining me are Mike Consul, a
Speaker 1: fellow with the Roosevelt Institute, and Jim Copeland, legal director
Speaker 1: at the Manhattan Institute. Jim, we've seen agency is that
Speaker 1: the Trump administration on different sides of Supreme Court cases,
Speaker 1: second Circuit cases. Is this any different? Um? I don't
Speaker 1: think it's that different. I mean, what what's underlying the
Speaker 1: dispute here is you've got Obama administration holdovers in the
Speaker 1: Consumer Financial Protection Bureau. And that's because when the Democrats
Speaker 1: are running Congress and past the Dot Frank Financial Reform
Speaker 1: Bill in two thousand and ten, they basically isolated this
Speaker 1: agency from funding by Congress it's funded through the Federal Reserve,
Speaker 1: and created a director structure where the director is not
Speaker 1: replaceable by a new administration by the President. And so
Speaker 1: you've had the Obama administration holdovers fighting for their rule,
Speaker 1: and you've had the Trump administration individuals in other agencies saying, well,
Speaker 1: no hold element, this rule doesn't make sense. Mike. Let's
Speaker 1: talk about the rule now. Consumers may not notice the
Speaker 1: fine print requiring arbitration that's buried into millions of contracts
Speaker 1: with credit card companies, bang rental car companies, etcetera. Tell
Speaker 1: us more about this mandatory arbitration clause. Sure. So, Um,
Speaker 1: there's been a real revolution in the way a lot
Speaker 1: of consumer contracts of work, both in the financial sector,
Speaker 1: which is what this Consumer Financial Protection Bureau rules impact,
Speaker 1: and broader across labor contracts and other other types of
Speaker 1: contracts that basically force people who have a grievance into
Speaker 1: a out of the courts and into a private setting
Speaker 1: with an arbiter who can have binding agreements. Many clauses
Speaker 1: forced those UH binding agreements to be confidential, and thus
Speaker 1: it takes an option away from consumers to have access
Speaker 1: to the courts for things that are very personal, very
Speaker 1: important to them. We saw big abuse scandals with Wells
Speaker 1: Fargo with three and a half million fraudulent UM accounts
Speaker 1: open for people, and people were forced into arbitration basically
Speaker 1: for things they didn't even have a hand in. And
Speaker 1: we saw the same thing with Equifax with a major
Speaker 1: data breach scandal. So I think we finally hit a
Speaker 1: point um. You know, there's a general awareness of this
Speaker 1: and so much that Dot Frank actually test the CFPB
Speaker 1: to do this study over course of years, which it
Speaker 1: did and then write a rule as necessary. So Mike,
Speaker 1: tell me about Jim. What does the Treasury Department's reports
Speaker 1: say about the proposed rule by the CFPB. What's wrong
Speaker 1: with it? Well, basically what they say is when you
Speaker 1: look at the actual data the CFPB is looking at it,
Speaker 1: it's it shows that it's going to hurt consumers. UH.
Speaker 1: Most likely, and and of course these things are uncertain,
Speaker 1: and these sort of talking points. I've got a piece
Speaker 1: on this and Investor's Business DAYA today the talking points
Speaker 1: or other guests is is using the same ones as
Speaker 1: Elizabeth Warrens using really missed the point. I mean, Equifax
Speaker 1: does have an arbitration clause in its contracts. Equifax, as
Speaker 1: as I said, it's going to waive it in this case.
Speaker 1: But if you look at the data breach consumer class
Speaker 1: actions that have actually been settled, and we've had them
Speaker 1: at Anthem, we've had them at a variety of companies,
Speaker 1: they've all paid out less than a dollar a person
Speaker 1: once you take the lawyer fees out of it for
Speaker 1: the members of the class. So it's not a realistic
Speaker 1: way for consumers to get a recovery. Arbitration. On the
Speaker 1: other hand, as as the CFPPS own study shows, on average,
Speaker 1: pays out about five thousand dollars for a successful claim,
Speaker 1: So so an individual can get a recovery there. They're
Speaker 1: not going to get a lawyer to take an individual
Speaker 1: case for five thousand dollars. It's just not enough money.
Speaker 1: But they can get a recovery through arbitration. Otherwise, they're
Speaker 1: at the mercy of the class action bar. And and
Speaker 1: that's really why the CFPP has pushed this rule, and
Speaker 1: why the Democrats and Congress have been pushing the rule.
Speaker 1: It's because they get a lot of money from the
Speaker 1: point ofs bar for class action litigation. We're talking about
Speaker 1: a rule the Consumer Financial Protection Board issued that makes
Speaker 1: it much easier for customers to sue their banks and
Speaker 1: others in class action lawsuits, and the opposition to it
Speaker 1: in by the Treasury Department in a report issued yesterday.
Speaker 1: My guests or my consul fellow with the Roosevelt Institute
Speaker 1: and Jim Copeland, legal director at the Manhattan Institute, Mike
Speaker 1: consumer advocates like this rule. Tell me about it and
Speaker 1: give me your reaction to what Jim said. Sure, well,
Speaker 1: in general, you don't harm consumers by giving them more choices.
Speaker 1: For consumers who still want arbitration because they want the
Speaker 1: cleanness of it, the quickness of it, any number of reasons,
Speaker 1: they can still do it. And the arbitration process itself
Speaker 1: will evolve because there's now competition there. And you don't
Speaker 1: harm citizens by giving them rights in courts. You harm
Speaker 1: them by taking away their rights. Um, you know, uh,
Speaker 1: industry is doing a lot of really exaggerated effects. There's
Speaker 1: a lot of reasonable debate to be had about what
Speaker 1: the impact of this rule will be. In the CFPB
Speaker 1: did extensive cost benefit analysis. UM. The Treasury report is
Speaker 1: in the context of the of another regulator who is
Speaker 1: appointed by Trump, the O c C, pushing back against
Speaker 1: this rule and arguing that when increased credit card rates
Speaker 1: four cent and you other guys said that consumers will
Speaker 1: get five thousand times the amount of returns in a
Speaker 1: private arbitration versus a court, which if the returns are
Speaker 1: five thousand percent high under arbitration. It's really not sure
Speaker 1: to me why industry is opposing this so much. UM.
Speaker 1: These estimates are just outside the realms of reasonable analysis,
Speaker 1: and they involve all kinds of they're not really random effects.
Speaker 1: Credit unions don't use this. This is really in effect
Speaker 1: of the big banks. And we've seen case studies where
Speaker 1: firms are have this ability taken away from them as
Speaker 1: part of the settlement, and we don't see any kind
Speaker 1: of rapid credit movement. So at the end, this gives
Speaker 1: consumers another choice, and I think that's important for them. Jim,
Speaker 1: isn't business and financial firms inarticular, aren't they usually opposed
Speaker 1: to any kinds of class actions? Will? Absolutely, and the
Speaker 1: reason is that the class action lawsuits are principally about
Speaker 1: benefiting the lawyers, not the members of the class. But
Speaker 1: but I just want to say that virtually everything Mike
Speaker 1: said there's faults. Uh. The five thousand dollars average recovery
Speaker 1: in an arbitration isn't something I made up. It's something
Speaker 1: from the cftb's own report. The four percent is between
Speaker 1: three and four percentage point. And to increase in the
Speaker 1: total cost of credit for for for for customers isn't
Speaker 1: something I made up. It's derived from the very study
Speaker 1: that the CFPB resolves on and what they try to
Speaker 1: say as well, this shows there'll be no actual impact.
Speaker 1: When we looked at the two thousand nine settlement, the
Speaker 1: thing he was talking about, what they said is they
Speaker 1: couldn't show that there would be an impact with nine
Speaker 1: percent confidence, but with eight percent confidence they could show
Speaker 1: that there would be an increase between three and four
Speaker 1: percent in terms of the interest rates. Then it's hard
Speaker 1: to know exactly how this will take out. It's part
Speaker 1: of it could be in fees, part of it could
Speaker 1: be an interest rates. Part of it could be in
Speaker 1: denying credit to consumers. But make no mistake, UH, consumers
Speaker 1: are going to be harmed, UH if in fact, they
Speaker 1: cost more to the banks to service them by transferring
Speaker 1: money from banks to lawyers, which is what these class
Speaker 1: action lawsuits are about, and the banks are going to
Speaker 1: recover that somehow. That's the point. I mean, clearly, you
Speaker 1: can get consumer advocates who are funded by the plaintiffs
Speaker 1: bar to say, oh, this is great for consumers, But
Speaker 1: to say that this creates more choice for consumers isn't
Speaker 1: really what's going to happen. These arbitration clauses are quite generous.
Speaker 1: The reason they're quite generous is because they foreclosed class
Speaker 1: action lawsuits. And if you force the banks to permit
Speaker 1: class action lawsuits notwithstanding these arbitration agreements, the arbitration agreements
Speaker 1: are going to change to consumers detriment. Well, I do
Speaker 1: want to note that the Treasury Department reports said financial
Speaker 1: firms would face extraordinary costs of more than five hundred
Speaker 1: million dollars in additional legal fees and one point seven
Speaker 1: billion in settlements to resolve three thousand more class action lawsuits.
Speaker 1: Attorneys will collect more than one million on average from cases. Well,
Speaker 1: consumers will receive just thirty two dollars according to the
Speaker 1: Treasury Department report. Mike, let's talk about what's happening in
Speaker 1: Congress right now to try to stop this rule. Absolutely
Speaker 1: just as a quick thing. That's not how peace statistics work.
Speaker 1: The percent is not like extrapitable, So, I mean, there's
Speaker 1: reasonable debates about these studies. UM. The big thing that's
Speaker 1: giving this an impetus is that because of various congressional
Speaker 1: rules that I don't know if necessarily worth getting into. UM,
Speaker 1: Congress and particularly the Senate can repeal this rule with
Speaker 1: a simple majority. It's already past the House a repeal
Speaker 1: of this rule because of the way I'm rules that
Speaker 1: pass in times of presidential transfers. UM, it's not clear
Speaker 1: if it will pass the Senate. UM, it's up in
Speaker 1: the air. You know, there's rumors as early as a
Speaker 1: vote today. UM, there's a time ticking on it. I
Speaker 1: think essentially in mid November, depending on how they massage it.
Speaker 1: They'll have to have chosen whether or not they're going
Speaker 1: to do this. And the Senate is obviously very concerned
Speaker 1: about getting tax reform into some sort of coherent in
Speaker 1: shape for the Trump administration. So, um, you know, there's
Speaker 1: there's a debate, much like healthcare, about whether or not
Speaker 1: they can get fifty votes to repeal this. Jim, do
Speaker 1: you believe they can get fifty votes? So? I don't know.
Speaker 1: I mean I said that I agree with Michael on this.
Speaker 1: The clock is ticking and it's not clear. It's not
Speaker 1: clear what's gonna happen in the Senate. There's fifty two
Speaker 1: Republicans in the Senate. Some of those, like Lindsay Graham
Speaker 1: of South Carolina, are received generous donations from the plaintiffs
Speaker 1: bar as do of course, the Democratic Senate leadership. So
Speaker 1: it's going to be a tight uh. I think fight
Speaker 1: on this. But but but I hope that the Republicans
Speaker 1: in the Senate stand up with the administration and the
Speaker 1: Republicans in the House and do the right thing here
Speaker 1: and not let the abomb administration sort of push this
Speaker 1: pro plaintiffs lawyer measure through without stopping at what they
Speaker 1: have the power to do. All right, we have about
Speaker 1: thirty seconds left, Mike, you'll have the last word. Um,
Speaker 1: you know, I think that's real a good rule. I
Speaker 1: think it was well planned. I think there's a lot
Speaker 1: of attacks about the procedures, but it's been in play
Speaker 1: for several years. It was mandated that they study this.
Speaker 1: And to me, the most interesting person who says that
Speaker 1: we should keep this rule as Gretchen Carlson, the former
Speaker 1: Fox host who was forced through mandatory arbitration into not
Speaker 1: being able to talk about her sexual harassment. Um, that's
Speaker 1: not that's that's not a financial contract. But it shows
Speaker 1: us really the detrimental fact. He's mandatory rules to stop you.
Speaker 1: There's that's Mike Counsil he's a fellow at the Roosevelt
Speaker 1: Institute and Jim Copeland, legal director at the Manhattan Institute.
Speaker 1: Coming up on Bloomberg Law. He's a star of the
Speaker 1: legal profession with more clients than we can handle. We're
Speaker 1: going to talk about trial lawyer David Boys, who's stepping
Speaker 1: out of the spotlight so his successors can carry on
Speaker 1: his firm's work.