CFPB’s Pro-Trial Lawyer, Anti-Small Business Ruling Cries Out for Congressional Repeal

By at 19 October, 2017, 7:42 pm

Small Business Insider

by Raymond J. Keating-

It’s not a secret – or at least it shouldn’t be – that the burdens of regulation fall most heavily on small businesses, with consumers in the end footing the ultimate bill via increased costs and/or reduced choices. That is the case, once again, with a recent ruling issued by a regulatory monstrosity created from the Dodd-Frank financial law.

Consider that one recent survey of small business owners from the National Small Business Association showed the formidable costs that small businesses face dealing with regulations, especially during the firm’s first year in existence, and another study from the National Association of Manufacturers estimated that the per-employee costs of regulations fall heaviest on small firms.

This is economic reality, even if politicians proclaim that some new regulatory scheme is only meant for big businesses, not the little guy. That was the case, for example, with the Dodd-Frank financial regulation law. Among its numerous problems, that law created the Consumer Financial Protection Bureau (CFPB), which is being challenged, appropriately, for being unconstitutional.

Among the CFPB’s misguided and costly actions, one came on July 10 of this year, when it ruled to prohibit financial institutions from including in contracts with their customers’ arbitration clauses that restrict class action lawsuits.

This was a rather stunning sop to trial lawyers coming at the cost of financial firms and their customers. After all, it’s well documented, including by the CFPB’s own findings, that consumers benefit from the arbitration process over class action lawsuits. Indeed, both consumers and businesses benefit from reduced time and costs involved with arbitration compared to class action lawsuits.

So, while lawyers would be the sole beneficiaries of this CFPB anti-arbitration ruling, the businesses ensnared by this regulation – via direct regulation and through the fallout from such regulation – would be numerous. Bank and nonbank financial institutions that provide consumer financial products and services (that is, for personal, family or household purposes) would be covered. As for the relevant products and services, CFPB’s own “Small entity compliance guide” lists the following:

1) extending consumer credit or participating in consumer credit decisions;

2) referring consumer applications to creditors;

3) selecting creditors for consumer credit;

4) “[a]cquiring, purchasing, or selling an extension of consumer credit”;

5) servicing an extension of consumer credit;

6) extending automobile leases;

7) debt management or debt settlement services;

8) “[p]roviding products or services
represented to remove derogatory information from, or improve, a person’s credit history, credit record, or credit rating”;

9) providing consumer credit reports or scores;

10) “[p]roviding accounts subject to the Truth in Savings Act… Generally, these accounts are deposit accounts at a depository institution or share draft accounts at a credit union if the accounts are offered to or held by a consumer”;

11) “[p]roviding accounts or ‘remittance transfers’ subject to the Electronic Fund Transfer Act… Generally, covered accounts include demand deposit, savings, or other consumer accounts held directly or indirectly by a financial institution and established primarily for a personal, family, or household purpose. They also include payroll card accounts and government benefit accounts as defined in Regulation E, and, after the effective date of the Prepaid Rule, other prepaid accounts subject to Regulation E”;

12) transmitting or exchanging funds (as defined, “‘Transmitting or exchanging funds’ means receiving currency, monetary value, or payment instruments from a consumer for the purpose of exchanging or transmitting the same by any means, including transmission by wire, facsimile, electronic transfer, courier, the Internet, or through bill payment services or through other businesses that facilitate third-party transfers within the United States, or to or from the United States.”);

13) “Accepting financial or banking data or providing a product or service to accept such data directly from a consumer for the purpose of initiating a payment by a consumer via any ‘payment instrument’ or initiating a ‘credit card’ or ‘charge card’ transaction for the consumer, except by a person selling or marketing a good or service that is not covered by the Rule, for which the payment or charge is being made.”

14) check cashing, collection or guaranty services;

15) debt collection tied to covered products or services.

Make no mistake, looking at his long list of covered products and services, this very much ranks as a small business story and concern. After all, the industries targeted for increased exposure to the uncertainties and costs of class action lawsuits overwhelming are populated by small firms. Indeed, even in the case of commercial banks, it’s largely a small, mid-size sector, as, according to the latest (2015) U.S. Census Bureau data, 75 percent of commercial banks have fewer than 100 employees, and 95 percent have less than 500 employees.

In a recent letter to Senate Majority Leader Mitch McConnell, SBE Council President & CEO Karen Kerrigan hit on the overarching issue at work here from a small business perspective:

“Access to capital remains a challenge for many small business owners and entrepreneurs. Enabling a common sense regulatory and business environment for financial institutions and in the financial services industry will improve capital access and encourage more innovation, competition and startups in this sector. Obviously, this will benefit our economy and America’s small businesses and entrepreneurs. Access to capital is the lifeblood of entrepreneurship and small business growth. America needs a more balanced regulatory system to support our innovators and job creators.”

Indeed, writing at, U.S. Sen. Tom Cotton (R-AR) and Rep. Keith Rothfus (R-PA) hit on the impact that this CFPB ruling would have on small, community banks and, therefore, on small businesses in general:

“The Office of the Comptroller of the Currency (OCC) has itself expressed legitimate concerns about the inevitable fallout. The OCC predicts the increased cost of litigation resulting from the rule could harm the safety and soundness of the federal banking system. In addition, community banks, which are already under considerable pressure, would have to hold greater reserves to prepare for future litigation. And every dollar community banks set aside to pay for future settlements is a dollar they’re not lending out to small businesses or families.”

As Kerrigan noted in her letter, the OCC analysis specifically found that lenders may need to charge 25 percent more for credit after factoring in the cost of class action litigation as a result of CFPB rule. Fortunately, Congress can act to repeal this anti-small business ruling from the CFPB. The U.S. House of Representatives, on July 27, voted by a margin of 231-190 to repeal this misguided regulation via H.J. Res. 111. In her letter, Kerrigan urged the Senate to act:

“Under the Congressional Review Act, as you know, Congress can vote to disapprove any new rules issued by federal agencies within 60 session days. The House has done so, and now quick action is needed by the Senate to repeal the CFPB’s anti-arbitration rule.”

In the end, repealing the CFPB’s anti-arbitration rule is an unmistakable, pro-consumer, pro-small business vote.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.


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