The Consumer Financial Protection Bureau (CFPB) rule banning mandatory arbitration could have devastating effects on small and startup financial institutions. Ted Frank, director of CEI’s Center for Class Action Fairness, and Iain Murray have shown how consumers typically fare better in arbitration than in class-action lawsuits, according to an article on CEI.org.
In addition to detrimental effects on consumers, the rule will likely affect credit unions, community banks, and sharing-economy innovations, such as peer-to-peer lending.
The article quotes CUNA’s comments that the regulation “will limit options for resolving disputes and could increase the incidences of frivolous class action litigation against credit unions, which could cause members to suffer when costs rise and resources are depleted.”
CUNA also said the rule goes against the principle of cooperative ownership by “encourage[ing] members, against their best interest, to engage in litigation against the institution of which they are a member-owner.”