Neugebauer: Examining the CFPB's Proposed Rulemaking on Arbitration

Rep. Randy Neugebauer (R-TX), Chairman of the Financial Institutions and Consumer Credit Subcommittee, delivered the following opening statement--as prepared for delivery--at today's hearing to examine if the arbitration rule proposed by the Consumer Financial Protection Bureau (CFPB) is in the public interest of consumers:

"Good afternoon. Today's hearing will examine the CFPB's proposed rulemaking on arbitration.

"Arbitration has long been recognized as an important form of alternative dispute resolution for a consumer that encourages efficiency, expediency, and lower barriers to bring disputes. In 1925, Congress passed the Federal Arbitration Act, which states that agreements to arbitrate are "valid, irrevocable, and enforceable.' Since that time, the Supreme Court, on numerous occasions, has upheld the broad use of arbitration agreements in contract law and highlighted the clear Federal policy favoring these agreements.

"In 2010, the Democrat-controlled Congress passed the Dodd-Frank Act, which mandated the Consumer Financial Protection Bureau study the use of arbitration agreements in consumer products and services. Section 1028 requires the Bureau to study these agreements and then -- consistent with the findings of the report- the Bureau may limit or ban these agreements if the findings of the study satisfy two statutory legal standards.

"The Bureau's rulemaking action must be:

1) "In the Public Interest'; AND

2) "For the protection of consumers'.

"Last March, the Bureau released its mandated study on arbitration. Unfortunately, rather than performing a thorough analysis of arbitration as required by the statute, the Bureau instead simply compared arbitration and class actions. The Bureau failed to adequately compare arbitration programs across the industry, or examine best practices that produced the greatest consumer outcome.

"However, even if Congressional intent was for the Bureau to compare arbitration and class actions, the study clearly demonstrates more favorable outcomes for consumers using arbitration as compared to class actions. For example, arbitration produces a significantly higher recovery for individual consumers and has a shorter resolution timeline for recovery.

"In testimony before this Committee, the agency has stated that banning the use of class action waivers in arbitration agreements, the main provision in the Bureau's rule, would achieve a primary Bureau objective -- "to give consumers their day in court'.

"Nothing could be further from the truth.

"Let's take for example a 2013 U.S. Chamber of Commerce's study on class actions. None of the class actions studied ever went to trial -- before a judge or jury. Additionally, not a single class action ended in a final judgment on the merits for the consumers.

"Now let's compare that to the CFPB's arbitration study. Yet again we see the same thing -- not a single class action was decided by a judge or jury. Remarkably though, class action attorneys recovered over $400 million in the Bureau's study.

"After my own review of the material, I have serious doubts that the Bureau has met the statutory requirements set-forth in Section 1028. Further, I fear a single, unelected bureaucrat has directed agency action that is arbitrary and capricious. The Bureau has failed to articulate a rational connection between the facts found in its May 2015 study and the agency action before us today. In my view, the proposed rule is a clear error in judgement by the Bureau.

"It will perpetuate a justice gap by taking away a legal forum for low-income individuals and those with small and individualized claims. That outcome would certainly not be for the protection of consumers.

"Today, we have a distinguished panel of experts who have spent considerable time studying this issue. I hope our witnesses will walk our members through the Bureau's report and provide their perspective on the proposed rulemaking, including whether the Bureau has satisfied its statutory requirements in Section 1028 of Dodd-Frank."

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