The CFPB’s Animated Approach to Financial Regulation
Hester Peirce and Vera Soliman
This week, the Bureau of Consumer Financial Protection (CFPB) released its final rule banning mandatory arbitration agreements from contracts for consumer financial products. As part of its rule rollout, the Bureau released a short animated video. The video suggests through word and image that financial institutions include mandatory arbitration clauses to block consumers from seeking justice. The video, which encapsulates the Bureau’s skewed view of the financial products marketplace, ignores the fact that financial institutions, like other companies, have to fight to retain their customers. A consumer’s power to take her business elsewhere is an important disciplining mechanism on financial companies. A consumer with a complaint often can call and get it resolved over the phone. The Bureau’s video instead presents the consumer as powerless and omits important nuances, such as an animated class action attorney walking off with the bulk of the class action settlement money.
The CFPB’s animated approach to regulation ignores evidence that suggests that a system that permits mandatory arbitration clauses benefits consumers. Under the new rule that prohibits such clauses, by contrast, consumers will bear the cost of meritless class actions. In a Mercatus Center working paper, professors Todd Zywicki and Jason Johnston explain the Bureau’s 2015 study on arbitration (the basis of support for the rule) is plagued by major methodological issues. Arbitration is not without its flaws, but as Johnston and Zywicki explain, “broad regulatory action by the CFPB that might nullify or discourage consumer arbitration could preempt what has become quite precise judicial supervision and fine-tuning of consumer arbitration clauses.”
If consumers don’t like mandatory arbitration clauses, they can avoid companies that use them. Companies, for their part, can advertise the fact that they will not force consumer disputes into arbitration. The Bureau, as it so often does, has chosen — rather than ensuring that consumers have the information they need to make their own choices — to deprive consumers of options. Consumers can’t avoid the Bureau’s mandate.
