Debt Arbitration is definitely more inexpensive compared to using the courts.

The first major attempt at federal deregulation in decades started in January 2017 and up until last month, the extensive Dodd-Frank rules have not been touched that much.

Using the Congressional Review Act (CRA) on Tuesday night, the Senate used its power to repeal the controversial arbitration rule under Dodd-Frank, which would have prohibited a number of financial consumers from resolving disputes using arbitration.

There was a vigorous opposition from those who supported the rule. They argued that if an arbitration rule isn’t in place, consumers will have no backing when having to deal with corporate fraud or malfeasance.

Ultimately the alarmist approach didn’t work, and it was probably for the best. The breach at Equifax and the fraud case with Wells Fargo were not related to the arbitration rule at all.

Even with Sen. Elizabeth Warren’s (D-Mass.) rhetoric, eliminating the rule will not make it easier for banks to cheat their customers. Fraudulent activity is still illegal, if the arbitration rule is in place or not.

Getting rid of the rule will not take away the consumer’s right to take legal action against a bank. Of course, putting your signature on a contract with a compulsory arbitration provision restricts a consumer’s power to take a bank to court to deal with specific conflicts; however, no one is forced to sign these kinds of agreements.

The banks have equal rights to ask a consumer to sign the agreements as does the consumer have an equal right not to sign the agreement. If the arrangement is a problem for the customer, they can always find an alternative at a different bank.

The Consumer Financial Protection Bureau (CFPB) believes it is their responsibility to keep consumers from hurting themselves. However, keeping the mandatory arbitration provision gives consumers and businesses the right to resolve disputes in a way that is mutually beneficial. Although the bureaucrats at CFPB have a different take, the majority of people realize that arbitration lets them be in a better position by steering clear of class-action legal proceedings, specifically for minor dollar matters.

A disturbing fact about the ban on arbitration agreements by the CFPB is that a study by the bureau itself showed that there was no support for the action. And Dodd-Frank, the regulation that produced the bureau, expressly instructed it to minimize or forbid arbitration terms only after research supplied proof to encourage these actions.

Consider the part of the study done by CFPB that covers arbitration contracts in credit card legal agreements. At this point, the CFPB wanted to know from consumers how they would react if their credit card company declined to take off incorrectly assessed charges. An obvious majority, 57% of participants, stated they would likely discontinue their credit card; just 1% stated they would likely get legal counsel.

Furthermore, on average, $5,389 is recovered by consumers when they use arbitration according to the study by the CFPB. On the other hand, with the class-action suit approach, only $32.35 is recovered on average.

Customers rarely get full satisfaction from class-action lawsuits. In many cases, consumers might only end up with coupons, while the trial lawyers collect their huge legal fees.

According to the CFPB’s own study, class action lawyers would see the arbitration as a gift, because they can collect windfalls while their clients only get worthless coupons.

At a minimum, the CFPB’s research implies that consumers are much less worried about the issue compared to the professional regulators and trial bar members.

However, the evidence is very clear, for consumers arbitration is much cheaper compared to court proceedings. This could be a reason why there hasn’t been a big movement by consumers to keep businesses from applying the arbitration agreements.

Congress did the proper thing when they repealed the CFPB rule. Businesses and customers can freely enter into contracts and high priced lawyers are no longer able to force their astronomical fees onto customers to pursue class-action lawsuits. That is how you provide real financial protection to consumers and getting rid of this rule is a win for consumers.

 

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