Two top federal financial institution regulators are squaring off over the “arbitration rule” by the Consumer Financial Protection Bureau (CFPB) which take effects early next year, with both questioning the data used by the other about the rule’s impact.
In a Friday column published by The Hill, Acting Comptroller of the Currency Keith Noreika argued that, when the Senate returns from recess Monday (Oct. 16), it should consider vacating the rule. The regulation would impose a ban on mandatory arbitration clauses in contracts for financial services – such as those covering consumer financial products, including credit cards and bank accounts — and which block consumers from joining in class actions to sue for alleged wrongdoing. The rule was finalized in September.
CFPB Director Richard Cordray Monday responded to Noreika’s column with one of his own, also in The Hill, in which he called Noreika’s comments “his second gratuitous attempt” aimed at undermining the evidence that supports the bureau’s rule. “Both times he has relied on so-called analysis that is simply embarrassing,” Cordray wrote.
The House has already voted to vacate the rule under the Congressional Review Act (CRA); no similar action has been taken in the Senate. However, time is running out: rules are subject to being vacated under CRA within 60 days of their being finalized. On Wednesday, 30 days will have passed.
In his column on Friday, Noreika wrote that in vacating the rule senators “must ask whether the rule achieves its intended purpose of increasing compliance with consumer protection laws and improving the treatment of consumers without creating other significant harm and increasing costs.”
He repeated charges he has made over the last several weeks that an OCC-conducted review of the final rule found an 88% chance that it would increase the total cost of credit, with an expected increase of almost 3.5 percentage points.
He wrote that the CFPB failed to disclose that observed effect which was apparent in its own data. “For an agency that demands transparency from the companies it supervises, the omission is an appalling abdication of the bureau’s responsibility to consumers,” he stated.
Cordray, in his column Monday, wrote that Noreika’s claim of increase interest rates was demonstrably bogus. “Based on an analysis that our economists have produced, the claim rests on a rudimentary statistical error of confusing the inverse of a p-value with the probability that a hypothesis is true. In laymen’s terms, this claim is the equivalent of flipping a coin twice, having both come up heads, and declaring that the coin is ‘very likely’ to have heads on both sides. It does not hold water,” Cordray wrote.
Friday, Cordray sent a letter to Sen. Sherrod Brown (D-Ohio and ranking member of the Senate Banking Committee), he wrote the OCC used “flawed statistics” and misstated the effects of the bureau’s arbitration rule on community banks.
Cordray wrote that the comptroller’s analysis of the arbitration rule was “mistaken and unfounded.”
The Cordray letter to Brown was first reported by the American Banker, a trade publication.