MADISON, Wis.—It’s “wait and see” as far as assessing the impact on credit unions from the CFPB’s new prohibition on arbitration agreements, according to CUNA Mutual Group.
The company that provides most of the bond coverage for credit unions and which would be most liable in the event the law is changed told CUToday.info that too many factors surrounding the prohibition—chiefly, that Congress is attempting to nullify it—make it difficult to provide an impact assessment.
The House of Representatives Tuesday passed a resolution (voting 231-190) of disapproval for the Consumer Financial Protection Bureau’s arbitration rule that would restrict the use of forced arbitration agreements.
The resolution (HJ Res. 111) would use the Congressional Review Act to repeal the rule and prevent the CFPB from issuing any similar rule relating to arbitration. Senators, nearly all of them sitting on the Senate Banking Committee, have also filed a resolution (SJ Res. 47) to repeal the rule.
Future Landscape
Released in final form in July, the CFPB's arbitration rule prohibits the use of arbitration agreements for the purpose of limiting access to class-action litigation. It is set to take effect Sept. 18; compliance is mandatory for pre-dispute arbitration agreements entered into on or after March 19, 2018.
The new rule increases the likelihood that financial institutions will face class-action lawsuits from consumers, experts have stated.
Mike Hoover, CUNA Mutual Group commercial underwriting specialist, said if Congress does not overturn the rule it’s difficult at this point to project the future landscape.
“What’s going to happen then, I wish I had a crystal ball. But what we all know is that credit unions act in the best interests of their members,” said Hoover, who emphasized the CU approach could mitigate the threat of class-action litigation.
Hoover also added that the legal impact on CUs is not expected to be significant since not that many credit unions have forced arbitration clauses in their contracts, he said.
“My understanding from the colleagues I work with who create forms for credit unions is that we don’t see forced arbitration clauses much. I just don’t know that we see many claims come to us where there has been some mandatory arbitration provision involved,” added Hoover. “I have not seen that personally. But, I think we will just have to wait and see.”
Hoover said he is not surprised to learn that few credit unions have forced arbitration clauses in their card contracts with members.
CUs Need To Be Vigilant
“Credit unions, unlike banks, are consumer-oriented organizations and are in the business of helping people. They generally do things to prevent issues with their members as they are concerned about doing the right thing,” he said.
But Hoover advised credit unions to be vigilant today, even as Congress moves against the rule.
“Keep an eye on this situation. Know whether your forms include forced arbitration clauses and perhaps start to think through how you would react to a class-action lawsuit,” Hoover said. “Start to think about this now as opposed to later.”
Experts, however, predict the Senate will vote against the bill, as did the House. Hoover said if that happens and the CFPB’s rule is overturned, that the Bureau will have a difficult time issuing any future prohibitions on arbitration agreements.
“If Congress overturns the rule I think another rule in this area would be pretty unattainable in the future for the CFPB,” he said. “If the CFPB wanted to pass a similar rule in the future it would then take an act of Congress to allow the agency to proceed down that path again.”