The debate over class action lawsuits and arbitration has gotten extra attention over the past few months in the wake of the Consumer Financial Protection Bureau’s (CFPB) new rule effectively banning most consumer arbitration clauses. We’ve been saying that the rule will actually hurt, not help, consumers.
Now a new report outlines an additional harm that will come to consumers: higher credit costs.
The Office of the Comptroller of the Currency (OCC) released a report last week that found the cost of credit cards could rise by about 25 percent once lenders take the cost of class action litigation into account after the new CFPB rule goes into effect.
To come to this conclusion, the OCC analyzed data that the CFPB itself used to justify its anti-arbitration rule released this summer. The OCC found that there is an almost 90 percent chance that the rule increases the cost of credit, and a greater than 50 percent chance that the cost jumps by at least three percentage points.
“That’s a 25 percent increase in credit costs for people who may live week to week,” Acting Comptroller Keith Noreika said. “There’s a real, tangible economic effect that it may have on consumers.”
This, of course, should not come as a surprise. The U.S. Chamber Institute for Legal Reform has long said that class actions enrich plaintiffs’ lawyers while offering no real benefit to consumers. Groups like the American Action Forum pointed to the CFPB’s own data that found that class actions are costlier, take longer to resolve, and result in less monetary benefit for consumers than arbitration.
Now, the OCC has found that restricting a cheaper, more efficient way of solving disputes will actually cost consumers.
The effects of the CFPB’s rule are a far cry from its goal of protecting consumers. All it’s protecting is a plaintiffs’ lawyer cash grab.
Make no mistake, the CFPB is helping plaintiffs’ lawyers while hurting the people it’s supposed to protect: consumers. It’s time for the Senate to swiftly follow the House’s lead in rolling back the CFPB’s misguided rule.