WEBVTT - In Unusual Move, Treasury Department Opposes CFPB (Audio) 0:00:00.120 --> 0:00:03.480 It's an unusually public clash between two agencies and the 0:00:03.480 --> 0:00:08.160 Trump administration, the Treasury Department, led by Treasury Secretary Stephen Manuchin, 0:00:08.200 --> 0:00:12.760 appointed by President Trump, versus the Consumer Financial Protection Bureau 0:00:12.840 --> 0:00:17.000 led by Richard Cordray, appointed by former President Barack Obama. 0:00:17.320 --> 0:00:20.480 In a report issued Monday, the Treasury Department blasted a 0:00:20.600 --> 0:00:23.680 rule passed in July by the CFPB that makes it 0:00:23.760 --> 0:00:27.560 much easier for consumers to sue banks and class action lawsuits. 0:00:27.960 --> 0:00:32.480 In proposing the rule, Cordrey said that mandatory arbitration clauses 0:00:32.560 --> 0:00:37.080 forced consumers to resolve disputes with financial companies outside the courts, 0:00:37.360 --> 0:00:40.760 and this rule would give consumers that choice. That would 0:00:40.760 --> 0:00:45.120 prevent mandatory arbitration clauses from imposing legal lockouts to deny 0:00:45.159 --> 0:00:48.000 groups of customers the right to pursue justice and secure 0:00:48.040 --> 0:00:52.400 meaningful relief from undoing. Joining me are Mike Consul, a 0:00:52.479 --> 0:00:56.120 fellow with the Roosevelt Institute, and Jim Copeland, legal director 0:00:56.480 --> 0:01:00.160 at the Manhattan Institute. Jim, we've seen agency is that 0:01:00.200 --> 0:01:03.720 the Trump administration on different sides of Supreme Court cases, 0:01:03.960 --> 0:01:09.880 second Circuit cases. Is this any different? Um? I don't 0:01:09.880 --> 0:01:12.360 think it's that different. I mean, what what's underlying the 0:01:12.440 --> 0:01:16.440 dispute here is you've got Obama administration holdovers in the 0:01:16.440 --> 0:01:20.480 Consumer Financial Protection Bureau. And that's because when the Democrats 0:01:20.520 --> 0:01:23.759 are running Congress and past the Dot Frank Financial Reform 0:01:23.800 --> 0:01:28.680 Bill in two thousand and ten, they basically isolated this 0:01:28.800 --> 0:01:32.160 agency from funding by Congress it's funded through the Federal Reserve, 0:01:32.520 --> 0:01:35.319 and created a director structure where the director is not 0:01:35.440 --> 0:01:38.280 replaceable by a new administration by the President. And so 0:01:38.600 --> 0:01:41.319 you've had the Obama administration holdovers fighting for their rule, 0:01:41.600 --> 0:01:46.320 and you've had the Trump administration individuals in other agencies saying, well, 0:01:46.400 --> 0:01:49.480 no hold element, this rule doesn't make sense. Mike. Let's 0:01:49.480 --> 0:01:52.680 talk about the rule now. Consumers may not notice the 0:01:52.800 --> 0:01:57.840 fine print requiring arbitration that's buried into millions of contracts 0:01:57.880 --> 0:02:02.720 with credit card companies, bang rental car companies, etcetera. Tell 0:02:02.800 --> 0:02:07.520 us more about this mandatory arbitration clause. Sure. So, Um, 0:02:07.560 --> 0:02:09.560 there's been a real revolution in the way a lot 0:02:09.600 --> 0:02:12.519 of consumer contracts of work, both in the financial sector, 0:02:12.520 --> 0:02:15.959 which is what this Consumer Financial Protection Bureau rules impact, 0:02:16.280 --> 0:02:19.000 and broader across labor contracts and other other types of 0:02:19.040 --> 0:02:24.239 contracts that basically force people who have a grievance into 0:02:24.840 --> 0:02:27.280 a out of the courts and into a private setting 0:02:27.720 --> 0:02:31.840 with an arbiter who can have binding agreements. Many clauses 0:02:31.880 --> 0:02:35.880 forced those UH binding agreements to be confidential, and thus 0:02:35.919 --> 0:02:38.720 it takes an option away from consumers to have access 0:02:38.760 --> 0:02:40.720 to the courts for things that are very personal, very 0:02:40.760 --> 0:02:44.200 important to them. We saw big abuse scandals with Wells 0:02:44.200 --> 0:02:48.640 Fargo with three and a half million fraudulent UM accounts 0:02:48.639 --> 0:02:52.440 open for people, and people were forced into arbitration basically 0:02:52.480 --> 0:02:54.840 for things they didn't even have a hand in. And 0:02:54.840 --> 0:02:56.760 we saw the same thing with Equifax with a major 0:02:56.880 --> 0:02:59.440 data breach scandal. So I think we finally hit a 0:02:59.520 --> 0:03:02.640 point um. You know, there's a general awareness of this 0:03:02.720 --> 0:03:05.920 and so much that Dot Frank actually test the CFPB 0:03:06.440 --> 0:03:08.959 to do this study over course of years, which it 0:03:09.040 --> 0:03:13.480 did and then write a rule as necessary. So Mike, 0:03:14.360 --> 0:03:19.200 tell me about Jim. What does the Treasury Department's reports 0:03:19.200 --> 0:03:23.320 say about the proposed rule by the CFPB. What's wrong 0:03:23.360 --> 0:03:26.520 with it? Well, basically what they say is when you 0:03:26.520 --> 0:03:29.480 look at the actual data the CFPB is looking at it, 0:03:29.480 --> 0:03:32.520 it's it shows that it's going to hurt consumers. UH. 0:03:32.760 --> 0:03:35.680 Most likely, and and of course these things are uncertain, 0:03:35.760 --> 0:03:38.160 and these sort of talking points. I've got a piece 0:03:38.200 --> 0:03:40.600 on this and Investor's Business DAYA today the talking points 0:03:40.680 --> 0:03:43.640 or other guests is is using the same ones as 0:03:43.640 --> 0:03:48.800 Elizabeth Warrens using really missed the point. I mean, Equifax 0:03:48.920 --> 0:03:52.520 does have an arbitration clause in its contracts. Equifax, as 0:03:52.560 --> 0:03:54.520 as I said, it's going to waive it in this case. 0:03:54.880 --> 0:03:57.040 But if you look at the data breach consumer class 0:03:57.080 --> 0:03:59.800 actions that have actually been settled, and we've had them 0:03:59.800 --> 0:04:03.240 at Anthem, we've had them at a variety of companies, 0:04:03.600 --> 0:04:05.840 they've all paid out less than a dollar a person 0:04:05.920 --> 0:04:07.680 once you take the lawyer fees out of it for 0:04:07.760 --> 0:04:10.400 the members of the class. So it's not a realistic 0:04:10.440 --> 0:04:13.920 way for consumers to get a recovery. Arbitration. On the 0:04:13.920 --> 0:04:19.400 other hand, as as the CFPPS own study shows, on average, 0:04:19.440 --> 0:04:23.200 pays out about five thousand dollars for a successful claim, 0:04:23.279 --> 0:04:26.599 So so an individual can get a recovery there. They're 0:04:26.600 --> 0:04:28.400 not going to get a lawyer to take an individual 0:04:28.480 --> 0:04:31.279 case for five thousand dollars. It's just not enough money. 0:04:31.320 --> 0:04:34.240 But they can get a recovery through arbitration. Otherwise, they're 0:04:34.240 --> 0:04:36.320 at the mercy of the class action bar. And and 0:04:36.360 --> 0:04:41.160 that's really why the CFPP has pushed this rule, and 0:04:41.160 --> 0:04:43.800 why the Democrats and Congress have been pushing the rule. 0:04:44.120 --> 0:04:45.640 It's because they get a lot of money from the 0:04:45.640 --> 0:04:49.320 point ofs bar for class action litigation. We're talking about 0:04:49.360 --> 0:04:53.120 a rule the Consumer Financial Protection Board issued that makes 0:04:53.160 --> 0:04:56.200 it much easier for customers to sue their banks and 0:04:56.240 --> 0:05:00.040 others in class action lawsuits, and the opposition to it 0:05:00.240 --> 0:05:03.839 in by the Treasury Department in a report issued yesterday. 0:05:04.200 --> 0:05:07.640 My guests or my consul fellow with the Roosevelt Institute 0:05:07.640 --> 0:05:11.720 and Jim Copeland, legal director at the Manhattan Institute, Mike 0:05:12.040 --> 0:05:16.279 consumer advocates like this rule. Tell me about it and 0:05:16.360 --> 0:05:19.839 give me your reaction to what Jim said. Sure, well, 0:05:19.880 --> 0:05:22.800 in general, you don't harm consumers by giving them more choices. 0:05:23.600 --> 0:05:26.000 For consumers who still want arbitration because they want the 0:05:26.040 --> 0:05:28.359 cleanness of it, the quickness of it, any number of reasons, 0:05:28.360 --> 0:05:30.599 they can still do it. And the arbitration process itself 0:05:30.880 --> 0:05:34.200 will evolve because there's now competition there. And you don't 0:05:34.240 --> 0:05:37.039 harm citizens by giving them rights in courts. You harm 0:05:37.080 --> 0:05:39.800 them by taking away their rights. Um, you know, uh, 0:05:39.920 --> 0:05:44.080 industry is doing a lot of really exaggerated effects. There's 0:05:44.120 --> 0:05:46.480 a lot of reasonable debate to be had about what 0:05:46.520 --> 0:05:49.600 the impact of this rule will be. In the CFPB 0:05:49.680 --> 0:05:53.320 did extensive cost benefit analysis. UM. The Treasury report is 0:05:53.360 --> 0:05:56.320 in the context of the of another regulator who is 0:05:56.360 --> 0:05:59.440 appointed by Trump, the O c C, pushing back against 0:05:59.440 --> 0:06:02.200 this rule and arguing that when increased credit card rates 0:06:02.279 --> 0:06:05.800 four cent and you other guys said that consumers will 0:06:05.839 --> 0:06:09.280 get five thousand times the amount of returns in a 0:06:09.279 --> 0:06:12.680 private arbitration versus a court, which if the returns are 0:06:12.680 --> 0:06:15.640 five thousand percent high under arbitration. It's really not sure 0:06:15.680 --> 0:06:19.159 to me why industry is opposing this so much. UM. 0:06:19.200 --> 0:06:22.240 These estimates are just outside the realms of reasonable analysis, 0:06:22.240 --> 0:06:25.040 and they involve all kinds of they're not really random effects. 0:06:26.640 --> 0:06:28.680 Credit unions don't use this. This is really in effect 0:06:28.680 --> 0:06:30.440 of the big banks. And we've seen case studies where 0:06:30.440 --> 0:06:32.880 firms are have this ability taken away from them as 0:06:32.920 --> 0:06:35.279 part of the settlement, and we don't see any kind 0:06:35.279 --> 0:06:38.120 of rapid credit movement. So at the end, this gives 0:06:38.120 --> 0:06:42.760 consumers another choice, and I think that's important for them. Jim, 0:06:43.000 --> 0:06:49.040 isn't business and financial firms inarticular, aren't they usually opposed 0:06:49.040 --> 0:06:55.000 to any kinds of class actions? Will? Absolutely, and the 0:06:55.080 --> 0:06:58.200 reason is that the class action lawsuits are principally about 0:06:58.240 --> 0:07:01.120 benefiting the lawyers, not the members of the class. But 0:07:01.120 --> 0:07:02.920 but I just want to say that virtually everything Mike 0:07:03.000 --> 0:07:07.600 said there's faults. Uh. The five thousand dollars average recovery 0:07:08.160 --> 0:07:10.960 in an arbitration isn't something I made up. It's something 0:07:10.960 --> 0:07:14.920 from the cftb's own report. The four percent is between 0:07:14.920 --> 0:07:17.360 three and four percentage point. And to increase in the 0:07:17.360 --> 0:07:20.800 total cost of credit for for for for customers isn't 0:07:20.840 --> 0:07:23.880 something I made up. It's derived from the very study 0:07:23.960 --> 0:07:26.680 that the CFPB resolves on and what they try to 0:07:26.680 --> 0:07:29.720 say as well, this shows there'll be no actual impact. 0:07:29.720 --> 0:07:31.680 When we looked at the two thousand nine settlement, the 0:07:31.720 --> 0:07:34.080 thing he was talking about, what they said is they 0:07:34.080 --> 0:07:36.320 couldn't show that there would be an impact with nine 0:07:36.680 --> 0:07:40.000 percent confidence, but with eight percent confidence they could show 0:07:40.320 --> 0:07:42.280 that there would be an increase between three and four 0:07:42.360 --> 0:07:44.480 percent in terms of the interest rates. Then it's hard 0:07:44.480 --> 0:07:47.080 to know exactly how this will take out. It's part 0:07:47.080 --> 0:07:48.680 of it could be in fees, part of it could 0:07:48.720 --> 0:07:50.480 be an interest rates. Part of it could be in 0:07:50.600 --> 0:07:55.520 denying credit to consumers. But make no mistake, UH, consumers 0:07:56.040 --> 0:07:59.560 are going to be harmed, UH if in fact, they 0:07:59.640 --> 0:08:03.160 cost more to the banks to service them by transferring 0:08:03.240 --> 0:08:06.119 money from banks to lawyers, which is what these class 0:08:06.160 --> 0:08:08.360 action lawsuits are about, and the banks are going to 0:08:08.440 --> 0:08:12.680 recover that somehow. That's the point. I mean, clearly, you 0:08:12.720 --> 0:08:15.120 can get consumer advocates who are funded by the plaintiffs 0:08:15.120 --> 0:08:17.480 bar to say, oh, this is great for consumers, But 0:08:17.560 --> 0:08:20.720 to say that this creates more choice for consumers isn't 0:08:20.760 --> 0:08:25.160 really what's going to happen. These arbitration clauses are quite generous. 0:08:25.200 --> 0:08:28.560 The reason they're quite generous is because they foreclosed class 0:08:28.560 --> 0:08:32.160 action lawsuits. And if you force the banks to permit 0:08:32.240 --> 0:08:36.560 class action lawsuits notwithstanding these arbitration agreements, the arbitration agreements 0:08:36.559 --> 0:08:39.920 are going to change to consumers detriment. Well, I do 0:08:40.080 --> 0:08:42.600 want to note that the Treasury Department reports said financial 0:08:42.640 --> 0:08:45.839 firms would face extraordinary costs of more than five hundred 0:08:45.880 --> 0:08:48.520 million dollars in additional legal fees and one point seven 0:08:48.559 --> 0:08:53.000 billion in settlements to resolve three thousand more class action lawsuits. 0:08:53.440 --> 0:08:56.760 Attorneys will collect more than one million on average from cases. Well, 0:08:56.800 --> 0:09:00.720 consumers will receive just thirty two dollars according to the 0:09:00.760 --> 0:09:06.520 Treasury Department report. Mike, let's talk about what's happening in 0:09:06.640 --> 0:09:11.400 Congress right now to try to stop this rule. Absolutely 0:09:11.480 --> 0:09:13.959 just as a quick thing. That's not how peace statistics work. 0:09:14.080 --> 0:09:17.400 The percent is not like extrapitable, So, I mean, there's 0:09:17.600 --> 0:09:20.600 reasonable debates about these studies. UM. The big thing that's 0:09:20.600 --> 0:09:24.880 giving this an impetus is that because of various congressional 0:09:25.000 --> 0:09:27.640 rules that I don't know if necessarily worth getting into. UM, 0:09:27.960 --> 0:09:30.680 Congress and particularly the Senate can repeal this rule with 0:09:30.720 --> 0:09:34.319 a simple majority. It's already past the House a repeal 0:09:34.360 --> 0:09:36.720 of this rule because of the way I'm rules that 0:09:36.800 --> 0:09:41.960 pass in times of presidential transfers. UM, it's not clear 0:09:42.000 --> 0:09:44.000 if it will pass the Senate. UM, it's up in 0:09:44.000 --> 0:09:45.920 the air. You know, there's rumors as early as a 0:09:45.960 --> 0:09:49.320 vote today. UM, there's a time ticking on it. I 0:09:49.320 --> 0:09:51.800 think essentially in mid November, depending on how they massage it. 0:09:52.120 --> 0:09:53.880 They'll have to have chosen whether or not they're going 0:09:53.960 --> 0:09:56.360 to do this. And the Senate is obviously very concerned 0:09:56.360 --> 0:10:00.080 about getting tax reform into some sort of coherent in 0:10:00.120 --> 0:10:03.199 shape for the Trump administration. So, um, you know, there's 0:10:03.320 --> 0:10:05.240 there's a debate, much like healthcare, about whether or not 0:10:05.240 --> 0:10:08.200 they can get fifty votes to repeal this. Jim, do 0:10:08.240 --> 0:10:12.760 you believe they can get fifty votes? So? I don't know. 0:10:12.920 --> 0:10:15.480 I mean I said that I agree with Michael on this. 0:10:15.679 --> 0:10:17.880 The clock is ticking and it's not clear. It's not 0:10:17.920 --> 0:10:19.880 clear what's gonna happen in the Senate. There's fifty two 0:10:19.880 --> 0:10:22.360 Republicans in the Senate. Some of those, like Lindsay Graham 0:10:22.400 --> 0:10:28.280 of South Carolina, are received generous donations from the plaintiffs 0:10:28.280 --> 0:10:32.160 bar as do of course, the Democratic Senate leadership. So 0:10:32.800 --> 0:10:36.040 it's going to be a tight uh. I think fight 0:10:36.120 --> 0:10:39.439 on this. But but but I hope that the Republicans 0:10:39.440 --> 0:10:41.640 in the Senate stand up with the administration and the 0:10:41.679 --> 0:10:44.360 Republicans in the House and do the right thing here 0:10:44.360 --> 0:10:47.520 and not let the abomb administration sort of push this 0:10:47.720 --> 0:10:52.760 pro plaintiffs lawyer measure through without stopping at what they 0:10:52.760 --> 0:10:54.679 have the power to do. All right, we have about 0:10:54.720 --> 0:10:58.959 thirty seconds left, Mike, you'll have the last word. Um, 0:10:59.000 --> 0:11:00.680 you know, I think that's real a good rule. I 0:11:00.679 --> 0:11:02.640 think it was well planned. I think there's a lot 0:11:02.640 --> 0:11:05.160 of attacks about the procedures, but it's been in play 0:11:05.240 --> 0:11:08.480 for several years. It was mandated that they study this. 0:11:08.960 --> 0:11:11.040 And to me, the most interesting person who says that 0:11:11.080 --> 0:11:13.600 we should keep this rule as Gretchen Carlson, the former 0:11:13.640 --> 0:11:17.720 Fox host who was forced through mandatory arbitration into not 0:11:17.800 --> 0:11:20.560 being able to talk about her sexual harassment. Um, that's 0:11:20.600 --> 0:11:23.000 not that's that's not a financial contract. But it shows 0:11:23.080 --> 0:11:26.040 us really the detrimental fact. He's mandatory rules to stop you. 0:11:26.080 --> 0:11:29.000 There's that's Mike Counsil he's a fellow at the Roosevelt 0:11:29.080 --> 0:11:32.640 Institute and Jim Copeland, legal director at the Manhattan Institute. 0:11:32.720 --> 0:11:35.599 Coming up on Bloomberg Law. He's a star of the 0:11:35.679 --> 0:11:38.600 legal profession with more clients than we can handle. We're 0:11:38.600 --> 0:11:41.880 going to talk about trial lawyer David Boys, who's stepping 0:11:41.880 --> 0:11:44.280 out of the spotlight so his successors can carry on 0:11:44.360 --> 0:11:45.120 his firm's work.