By Elizabeth Dexheimer, Bloomberg News
Just days after approving a controversial rule that will make it much easier for Americans to sue their banks, the U.S.’s top consumer watchdog is already fighting back against attempts to prevent the regulation from taking effect.
Consumer Financial Protection Bureau Director Richard Cordray said there is “no basis” to claims that his agency’s action will put the nation’s financial system at risk. Cordray made his comments in response to concerns raised by acting Comptroller of the Currency Keith Noreika, a regulator appointed by the Trump administration who had a long legal career representing banks.
The CFPB rule restricts financial firms from forcing consumers to resolve their disputes through arbitration, a practice that has been used by the industry for years to keep grievances tied to payday loans, credit cards and other products out of courts. It could take effect next year, potentially opening banks up to a wave of costly class-action lawsuits.
Noreika questioned the regulation just prior to its release, writing to Cordray July 10 — the day it was passed — that the Office of the Comptroller of the Currency wanted to work with the CFPB to address potential threats to “the safety and soundness” of lenders. Cordray dismissed those concerns in a letter dated July 12.
The skirmish between Cordray and Noreika pits an Obama administration holdover against a recently installed regulator who has said he’s committed to President Donald Trump’s deregulatory agenda. Cordray is also battling GOP lawmakers, who are outraged that he’s still leading the CFPB. Senator Tom Cotton, an Arkansas Republican, has already pledged to halt the arbitration rule through congressional action.
Banks have long opposed restrictions on arbitration, arguing that it leads to better outcomes for consumers than litigation, and that much of the money won through lawsuits goes to trial lawyers.
Noreika has laid out a strategy for undermining the CFPB’s rule that doesn’t require involvement by Congress. His July 10 letter to Cordray cited a section of the Dodd-Frank Act that allows a regulator to petition the Financial Stability Oversight Council — a panel of regulators headed by the Treasury secretary — to set aside any CFPB rule if there’s evidence it puts the safety of the wider financial system at risk. His letter was seen as a first step in using those Dodd-Frank powers to potentially delay the arbitration rule.
Cordray said his staff would be happy to brief Noreika and that this was the first time the OCC had expressed any interest in data that the CFPB had used to justify its rule. Cordray added that he was “surprised” to receive Noreika’s letter, as the CFPB has been working on the arbitration rule for more than two years and no one at the OCC previously complained about how it might impact banks.
“At no time during this process did anyone from the OCC express any suggestion that the rule that was under development could threaten the safety and soundness of the banking system,” Cordray wrote. “Nor did you express any such concerns to me when we have met or spoken.”
Bryan Hubbard, an OCC spokesman, said Noreika has received Cordray’s letter and is reviewing it.
–With assistance from Jesse Hamilton.
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