The Treasury Department Monday assailed a new rule adopted by a federal agency headed by former Ohio Attorney General Richard Cordray, charging it would lead to thousands of new class-action lawsuits and cost businesses $500 million in legal fees during the next five years.
The report, which is expected to add fuel to Senate Republican efforts to scrap the rule as early as this week, claims Cordray’s decision allowing Americans to join class-action lawsuits against their credit card companies would lead to $1.7 billion in additional legal settlements during the next five years and higher costs for Americans borrowing money from their credit cards.
“It is far more likely that the rule will generate massive economic costs – borne by businesses and consumers alike,” concluded the report released by the Trump administration.
The Consumer Financial Protection Bureau this year instituted a rule that allows Americans to take their complaints about their credit cards and bank accounts to court. Before the rule was adopted, most credit card companies required that any dispute between the companies and Americans be settled through mandatory arbitration.
Sen. Sherrod Brown, D-Ohio, sharply criticized the report, saying “when large financial institutions like Wells Fargo and Equifax use forced arbitration to cover up egregious cheating, it’s working people in places like Ohio who pay the price,” adding the Treasury Department “has cherry-picked its arguments.”
In an opinion piece originally published in the New York Times in August, Cordray complained that “opponents have unleashed attacks to overturn the rule,” adding the rule “does not ban individual arbitration, as our opponents falsely claim.”
“It simply ensures that consumers have the option of joining together to sue companies,” Cordray wrote in the piece which was re-posted last week on the consumer bureau’s web site. “Companies and consumers can still use arbitration to resolve their differences, but companies cannot unilaterally block group lawsuits.”
Cordray wrote that the consumer bureau calculated that the new rule would impose less than $1 billion in new costs for the nation’s banks which he said reported $171 billion in profits last year.
Congressional Republicans and Trump have sharply objected not only to the rule, but the consumer bureau itself. The House this summer voted 231-190 to overturn the arbitration rule. The Senate could vote as early as this week on scrapping the rule.