Last month, Sen. Susan Collins once again demonstrated her support of Maine’s credit unions and other local financial institutions by voting to repeal the Consumer Financial Protection Bureau’s arbitration rule. While some view and criticize her vote as anti-consumer, her vote was decidedly pro-consumer.
The rule would have banned most forced arbitration clauses and allowed consumers to join together to sue their bank or credit card company to resolve financial disputes. Had the rule gone into full effect, it would have emboldened trial lawyers to seek out frivolous lawsuits that often generate large legal bills benefiting themselves, but provide minimal relief to those they represent. The bureau’s own data show that the average payout to consumers is $32.35.
The U.S. Department of Treasury found that the rule would have generated an additional 3,000 class actions over the next five years, resulting in “extraordinary costs” for businesses. It estimated that additional class actions would have cost businesses more than $500 million in additional legal defense fees, $330 million in payments to plaintiffs’ lawyers, and $1.7 billion in settlements.
Because credit unions are owned by their members, the burden of the higher legal costs would have been borne directly by members. Worse, over the past few months, credit unions have even been plagued by demand letters and litigation threats from trial lawyers allegedly representing the interest of consumers who are not even members, which equates to the resources of the membership primarily being redirected to trial lawyers.
When the rule was being finalized 399 members of Congress, including Collins, signed a letter to the bureau asking it to tailor the rule to address bad actors and to limit the impact on credit unions and community banks, a request that was not addressed in the rule’s final form. If it had, the outcome and our position might have been different.
The rule failed to take into account the different size and structure of credit unions and the harm that class-action litigation can cause them. In the United States, nearly half of all credit unions, 2,708 out of approximately 6,000 credit unions, have five or fewer full-time employees. More than half have assets of less than $50 million. Moreover, credit unions with less than $20 million in assets account for more than 40 percent of all U.S. credit unions.
Let me be clear, Maine credit unions do not use or enforce arbitration clauses on a widespread basis. Both disputes with their members and the existence of arbitration clauses in credit union contracts are infrequent, and the evidence can be found in consistently high consumer ratings. Credit unions’ member ownership structure means we tend to pull out all the stops to work with members who may find themselves in a dispute with their credit union in order to come to a solution that is good for all parties.
Having the option of arbitration gives consumers, credit unions and their members a chance to stay out of court, adding a layer of protection for all members’ pooled resources.
We understand the important place regulations have in our industry, but the bureau’s one-size-fits-all approach failed to recognize that credit unions are different than Wall Street banks. Because of Collins, credit unions can continue to work with their members on legal matters in ways that are fair and make sense for everyone involved. The arbitration rule would have been harmful to the very consumers it is supposed to help, and we thank Collins for her vote to protect the resources of credit union members.
The bureau should be using its rules to stand up to those who abuse consumers, not deprive demonstrably consumer-friendly entities of every tool at their disposal to do what’s best for their members. In the case of Collins, we appreciate her doing what the bureau would not — stand up in support of our members, the nearly 700,000 Maine consumers that use a credit union.
Todd Mason is the president and CEO of the Maine Credit Union League, the state trade association for Maine’s 56 credit unions with nearly 700,000 members.
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