Term Paper on "Arbitration Rule involving The CFPB"

Term Paper 8 pages (2299 words) Sources: 6 November 6, 2020

[EXCERPT] . . . .

11

The CFPB Arbitration Rule

Abstract

This report will be on the Consumer Financial Protection Bureau Rule. This is a rule that bars financial companies from using arbitration clauses to preclude consumers from pursuing their legal rights in court. This report will scrutinize the legality of the Rule in consumer protection.

I. Introduction

A. Introduction of the Paper

The Consumer Financial Protection Bureau (CFPB) had been formed in July 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The CFPB combines most Federal consumer financial protection authority in one place. On Jul 10, 2017, CFPB announced a new rule that deterred companies from using mandatory arbitration clauses to prevent groups of people from seeking justice in court.

B. Background Information regarding the topic

Congress passed the Protection Act in response to the Late-2000s recession and financial crisis. On Sept 17, 2010, former President Barrack Obama officially appointed Warren as the President\\\'s Assistant and the Secretary of the Treasury\\\'s Special Advisor on the Consumer Financial Protection Bureau. The agency was established on Jul 21, 2011.

The critical focus of the Bureau is on mortgages, credit cards, and student loans. Even though the bureau is an independent body, it is funded by the United States Federal Reserve under the U.S Treasury Department. The Bureau is; writing and enforcing rules for financial institutions both in banks and non-bank institutions, evaluating markets, and receiving and tracking consumer complaints to ensure fairness, transparency, and equality for financial products consumers.

The agency\\\'s current Director is Kathy Kraninger, nominated on Jun 16, 2018, by President Donald Trump as the Director of the CFPB. The Director of CFPB is nominated by the President of the United States of America.

https://www.consumerfinance.gov/about-us/

Describe the certain agency rule, regulation, or action that was passed (i.e., the regulation created)

There has been an issue with the fairness of mandatory arbitration. The Consumer Financial Protection Bureau (\\\"CFPB\\\") conducted a survey. The findings were that seven out of the eight well-known mobile wireless providers, covering 99.9% of total subscribers, had a mandatory arbitration clause in their contracts. More than 90% of credit card issuers also have arbitration clauses in their contracts with consumers.

Describe its impact on individuals or businesses and include statistics, facts, and data on the effects to show the reader this is an important administrative law issue.

Those who objected were concerned that this new rule was not in favor of the citizens but of trial lawyers. They believed that the rule was designed to help trial lawyers gather class-action suits and harm the citizens tax-wise.

Examples

\\\"To whom it may concern. I am writing in regards to the legislation about helping trial lawyers. This nation\\\'s lawyers should not be receiving any help from our federal...\\\".

\\\"This proposed regulation isn\\\'t about protecting consumers. It\\\'s designed to make it easier for trial lawyers to gather big class-action groups allowing them to collect bigger fees...\\\"

Give one or more \\\"real life\\\" stories of consumers, employees, vendors, stakeholders, etc. who were affected (either good or bad) by your agency\\\'s controversial rule, regulation, or action to put a human face on the topic.

Wells Fargo initially opposed a class action filed against it, and the court ruled in its favor. This meant that consumers who had filed the action suit had to file individual arbitrations. Because very few customers would bother to follow up on the compensation, Well Fargo wouldn\\\'t have to pay more than $5 million (as required by law) to all the claimants unless it wanted to. However, due to the public and Congress\\\'s pressure, Wells Fargo agreed to a class action settlement of $142 million. This goes to show the difference between arbitration and class action suit.

II. Legal Section

Introduction to Legal Section

The Consumer Protection Act and Dodd-Frank Wall Street Reform.

https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf

Adjudication is the ascertainment of individual constitutional rights and obligations by focusing on the individuals and queries relating to prevailing or preceding facts. In determining a case, the court applies current laws and policies to the facts of the case. On the other hand, Rulemaking is the determination of regulation concerning persons, groups, or classes\\\' future conduct.

Due process is a requirement by law that the state respects all human rights. Rulemaking requires more \\\"due process\\\" because there is a need for public participation as a democratic right. On the other hand, Adjudication is limited to the aggrieved partied and the administrative agency; the public is limited from participating in the decision-making process.

CFPB Rule came to place through the Rulemaking process. The decision focused on people\\\'s future conduct in society and not on individual constitutional rights or happenings of the past. There was due process followed because the Bureau sought public opinion before the rulemaking. Though, it was thrown out by Congress, who termed it unconstitutional.

B. Statement of Relevant Legal Principles and Rules of Law

The rule was noticed on Nov 22, 2017

https://www.federalregister.gov/documents/2017/11/22/2017-25324/arbitration-agreements

The procedural due process limits the exercise of power by administrative agencies by requiring them to follow procedures when trying matters in Court. In case of an unfair procedural due process, one can challenge Procedural due process by filing a complaint or seeking a court order that directs the government to follow due process in dealing with you. The substantive due process encompasses the state\\\'s power to control certain activities and make legislation. The federal courts have the power to intervene when the States make decisions that undermine citizens\\\' fundamental rights. One has the right to challenge any state laws that violate the constitution in Court. The legal elements involved when a court is making a decision are; equity and equality. The Court must be non-discriminatory and make decisions that reflect on rightness and reasonability.

Can this controversial rule, regulation, or action be challenged under either of these?

Yes.

If so, how so. If not, why not.

By seeking the court through litigation to declare it unconstitutional and in breach of fundamental rights.

Has your specific rule, regulation, or action spawned any litigation or appeals?

Yes

PHH Corp. vs. Consumer Fin. Prot. Bureau - 881 F.3d 75 (D.C. Cir. 2018)

In 2008 when the U.S. went into recession, Congress saw a need to create an agency to restore public confidence in markets. Congress founded the Consumer Financial Protection Bureau (CFPB) gave it a degree of independence. The CFPD under one Director had the power of rulemaking and enforcing of the rules. Furthermore, the Director is protected against removal by the President without cause. The decision was challenged as an unconstitutional impediment to the President\\\'s power. The court ruled that the Bureau is constitutional and has the mandate of rulemaking and rule enforcement.

https://www.cadc.uscourts.gov/internet/opinions.nsf/B7623651686D60D585258226005405AC/$file/15-1177.pdf

Legal Conclusion as to if the agency\\\'s rule, regulation, or action was legal and provided \\\"due process\\\" through its enactment (then transition to Ethics Section)

The rule is unconstitutional; hence it was thrown out by Congress.

III. Ethics Section

Ethics are a set of moral values set by an individual, and that determines their behavior. Laws are rules put in place to govern society.

Explain why government administrators are held to a heightened level of ethical standards as compared to general business managers

This is because ethics by the government administrators provide accountability and transparency between the public and the administration.

Some fel that law and ethics are the same, explain this thought process called \\\"legal positivism,\\\" and define this approach and its soundness.

In legal positivism, Hart believes that there is no conceptual relationship between law and morals. In his theory, for a legal system to exist first, the valid obligation rules must be generally obeyed by society members. Secondly, leaders must accept the rules of change and adjudication. This approach is applicable in society in that a legal system will only exist if the primary rules are obeyed, and the legislators accept the rules of change and adjudication.

Under the \\\"legal positivism\\\" approach, is your rule, regulation, or action ethical?

The rule is not ethical because if allowed, there would be an increase in class action suits. The cases would be an additional expense to the state\\\'s budget. In the end, taxes would increase, and so would the cost of products and services. Ultimately, it is the people who suffer. What this means is that no one would want to adhere to those kinds of rules.

Is \\\"legal positivism\\\" a sound theory for a responsible administrator to adopt? Debate this in this section of the paper.

B. Is your agency rule, regulation, or action ethical under the \\\"utilitarianism\\\" ethical theory?

Explain the ethical theory of \\\"utilitarianism\\\" and explain it and how it works.

Utilitarianism is a theory of morality, which supports actions that result in happiness or pleasure and opposes actions that cause sadness or damage. The utilitarian philosopher believes that a law or action is right if it is satisfying to many people in a society. Thus, one individual\\\'s rights could be infringed upon to benefit a larger number of people. If the rule… READ MORE

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