Fact check: Consumer Financial Protection Bureau rules on class action lawsuits, arbitration agreements
September 11, 2017
By Sara Reynolds
House Republicans recently voted to revoke a regulation by the Consumer Financial Protection Bureau (CFPB) that prohibits banks and other financial service providers from requiring customers to engage in arbitration before joining a class-action lawsuit.[1][2] Rep. Keith Rothfus (R-Pa.), who sponsored the resolution of disapproval, claimed, "The CFPB rule, like so many other Washington rules and regulations, hurts the very people it is supposed to help. According to the CFPB’s own study, the average recovery for members of a class action lawsuit is a paltry $32, contrasted with the average $5,389 recovery for consumers who use arbitration.”[3]
Is Rothfus correct that the CFPB documented larger recoveries for consumers from arbitration compared to recoveries from class action lawsuits?
Yes. The CFPB reported that $1.1 billion has been (or was scheduled to be) paid to 34 million consumers participating in class action lawsuits or legal settlements—an average of $32 per person. In comparison, the bureau reported that individual consumers recovered an average of $5,389 from 32 disputes settled in arbitration in which consumers received relief. (Arbitrators settled 158 arbitration disputes in total.)[4][5]
Background
The Consumer Financial Protection Bureau (CFPB) is an independent federal agency established in 2010 under the Dodd-Frank Act.[6] Under Title X of the act, the bureau is authorized to regulate all manner of consumer financial products and services, including banking and credit. It also offers financial education to consumers; solicits consumer complaints; and investigates and penalizes illegal practices.[7]
Rothfus was elected in 2012 and re-elected in 2016 to represent southwestern Pennsylvania's 12th Congressional District. He is the vice chairman of the House Committee on Financial Services.[8]
House Joint Resolution 111 (HJR 111) proposes to nullify the CFPB’s arbitration rule. The bill is part of a process established by the Congressional Review Act to expedite repeal of a regulation within 60 days of its finalization.[9] HJR 111 passed the House on a vote of 231 to 190 on July 25, 2017.[10]
A pre-dispute arbitration agreement binds a consumer and a financial institution to attempt arbitration instead of litigation when a dispute arises.[5] The agreement is typically signed when a consumer initiates service.
Arbitration occurs outside of the court system; the parties choose a neutral mediator to manage negotiations and resolve conflicts.[11] Class action litigation occurs within the court system when multiple claimants are collectively represented by a party to the lawsuit.[12]
The CFPB rule prohibits a variety of financial service providers from requiring customers to sign a pre-dispute arbitration agreement as a condition of service. The rule is slated to take effect on September 18, 2017, and full compliance is required by March 19, 2018.[13][14][15][11]
CFPB study
Under the Dodd-Frank Act, Congress directed the CFPB to carry out a study on arbitration agreements and authorized the bureau to regulate the agreements if the bureau concluded that regulation would be "in the public interest and for the protection of consumers."[16] The CFPB submitted its report to Congress in March 2015.[11]
The study examined the results of both arbitration cases and class action lawsuits. Specifically, the bureau reviewed 419 class action cases settled in federal district courts between 2008 and 2012. The bureau identified 34 million consumers from 236 of the 419 class action cases who had received payments and calculated recovery payments from the records of 251 cases. In total, consumers received (or were scheduled to receive) cash or debt forbearance (excluding expenses or fees) of $1.1 billion—which equates to $32 per person, on average.[5]
The study also reviewed 1,060 cases filed with the American Arbitration Association in 2010 or 2011. Some 32 percent of the cases (341) were resolved by an arbitrator’s decision (others were resolved by settlements and other methods).[4] Of these, the bureau was able to determine the outcome of 158 cases brought by consumers seeking relief under federal or state law. Arbitrators granted monetary relief in 20 percent of these cases (32), with consumers receiving an average of $5,389. (The median recovery was $2,682.)[17][5]
The CFPB acknowledged several limitations to its analysis and concluded that the study results were “inconclusive as to the benefits to consumers of individual arbitration versus individual litigation during the Study period.” The bureau officials recommended caution in drawing conclusions from its study, although it promulgated the regulation nonetheless.[11][5]
According to the CFPB, "This final rule is based on the Bureau's findings—which are consistent with the Study—that pre-dispute arbitration agreements are being widely used to prevent consumers from seeking relief from legal violations on a class basis, and that consumers rarely file individual lawsuits or arbitration cases to obtain such relief."[11]
Conclusion
House Republicans recently voted to rescind a rule from the Consumer Financial Protection Bureau that prohibits banks and other financial service providers from requiring customers to engage in arbitration with the company before filing a lawsuit. The bill’s sponsor, Rep. Keith Rothfus (R-Pa.), claimed that the CFPB’s own study determined that consumers in arbitration recovered more money than those who joined class action lawsuits.[3]
Rothfus is correct. The CFPB study, albeit limited, found that consumers in class action lawsuits received (or were scheduled to receive) an average of $32 compared to an average recovery of $5,389 under arbitration.
See also
- Federal policy on financial regulation, 2017-2020
- Consumer Financial Protection Bureau
- Dodd-Frank Act
Sources and Notes
- ↑ The Senate has until the end of September to halt the rule, which would also require the president’s signature.
- ↑ Congress.gov, "Summary: H.J.Res.111 — 115th Congress (2017-2018)," accessed August 23, 2017
- ↑ 3.0 3.1 United States House of Representatives: Keith Rothfus, "House passes Rothfus-sponsored legislation to enable better recoveries for harmed consumers," July 25, 2017
- ↑ 4.0 4.1 The CFPB examined affirmative claims, defined as any claim in which a consumer is seeking monetary relief under federal or state statute.
- ↑ 5.0 5.1 5.2 5.3 5.4 Consumer Financial Protection Bureau, "Arbitration Study," March 2015
- ↑ Cornell Law School, "Dodd-Frank: Title X - Bureau of Consumer Financial Protection," accessed September 11, 2017
- ↑ Consumer Financial Protection Bureau, "The Bureau," accessed August 23, 2017
- ↑ United States House of Representatives, "About Keith," accessed August 23, 2017
- ↑ Smithsonian Magazine, "What Is the Congressional Review Act?" February 10, 2017
- ↑ United States House of Representatives Office of the Clerk, "Final vote results for roll call 412," July 25, 2017
- ↑ 11.0 11.1 11.2 11.3 11.4 Federal Regsiter, "Arbitration Agreements," July 19, 2017
- ↑ Manhattan Institute, "Class Actions, Arbitration, and Consumer Rights: Why Concepcion is a Pro-Consumer Decision," February 19, 2013
- ↑ The rule also requires service providers to submit a variety of arbitration records and court documents to the bureau for monitoring.
- ↑ Creditors may utilize arbitration agreements if: a) the presiding court has ruled that the case may not proceed as a class action, an appeal of that decision has failed, and the time to appeal the ruling has elapsed; b) the agreements include a plain-language provision disclaiming its applicability to class actions, or provide notice of such to consumers when they enter into an agreement; c) creditors submit specified arbitral and court records to the bureau.
- ↑ The rule applies to financial institutions that provide services such as loans, credit, debt management, transfers, and transmission or exchange of funds.
- ↑ Congress.gov, "H.R.4173 - Dodd-Frank Wall Street Reform and Consumer Protection Act," accessed Septemer 11, 2017
- ↑ 23.2 percent of cases (246) were resolved by known settlement and the CFPB believes that an additional 34.2 percent of cases (362) were solved by settlement. 10.5 percent of cases (111) were resolved another way (closed due to conflicting litigation and arbitration proceedings, for example).
Launched in October 2015 and active through October 2018, Fact Check by Ballotpedia examined claims made by elected officials, political appointees, and political candidates at the federal, state, and local levels. We evaluated claims made by politicians of all backgrounds and affiliations, subjecting them to the same objective and neutral examination process. As of 2025, Ballotpedia staff periodically review these articles to revaluate and reaffirm our conclusions. Please email us with questions, comments, or concerns about these articles. To learn more about fact-checking, click here.
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