by Jean R. Sternlight, Saltman Professor of Law, Boyd School of Law, UNLV
*This is part of ACSblog's Symposium on Regulatory Rollback
The Consumer Financial Protection Bureau (CFPB) just issued a new rule prohibiting financial service providers from using forced arbitration to prevent their customers from suing the company in class actions. While many of us believe this rule is a “great win for consumers,” others are trying to gut it in Congress, in the courts, or through administrative action by the Comptroller of the Currency.
The new CFPB rule is critically important in its own right, but it is also interesting to view the battle over this rule as a microcosm of the fight we so often see between free market devotees and fans of regulation. Bankers, credit card issuers, payday lenders and the Chamber of Commerce have urged for many years that consumers should be free to “choose” to resolve disputes through individual arbitration – supposedly a quicker, cheaper better mode of dispute resolution as compared to litigation and class actions. In contrast, those who oppose forced arbitration assert that such arbitration is unfair for consumers and bad for society as a whole. Ultimately this battle between free marketeers and pro-regulation forces turns on principles of economics, psychology, and political philosophy, as I have detailed elsewhere.