The Consumer Financial Protection Bureau (CFPB) released a proposal early Thursday morning outlining a significant change to the arbitration process for credit unions and other financial institutions and businesses.
While CUNA continues to review the 377-page proposal, issued in conjunction with a field hearing the CFPB held Thursday in Albuquerque, N.M., based on an initial assessment, Ryan Donovan, CUNA chief advocacy officer, said the proposal is inappropriate for credit unions because they are member-owned, not-for-profit financial cooperatives with different dispute resolution incentives compared with for-profit institutions.
“Credit unions are owned by their members, and, as not-for-profit financial cooperatives, have incentive to and a long history of prioritizing the needs of their members,” Donovan said. “As a result, credit unions face different dispute resolution dynamics, and we believe the CFPB should take these differences into account by exempting credit unions when it releases its final rule.
“Because of their ownership structure, credit unions prefer to work closely with members to amicably resolve disputes. This proposal, however, removes an important tool that, while used infrequently by credit unions, can provide time and cost-saving benefits for all parties that litigation does not. It also sets up a scenario in which a group of members that have a dispute with their credit union would essentially have to sue themselves, as a class-action suit filed against a credit union could only be brought by a group of member-owners. In that situation, everyone, except the plaintiffs’ attorneys, loses.
“Furthermore, in the rare situation that a group of credit union members feels a credit union is in the wrong, the group, as member-owners, already have direct recourse to remove the credit union’s Board of Directors and management using their one-member, one-vote membership powers--only further evidence as to why the CFPB should exempt member-owned, not-for-profit financial institutions from this rule. A credit union’s member-owners should be allowed to decide how disputes with the credit union are resolved.
“As the CFPB works toward a final rule on the arbitration process, it is absolutely critical for credit unions to have as many tools as possible to resolve disputes. Eliminating the option to resolve disputes through pre-dispute arbitration would add to the uphill battle credit unions face in trying to continue to provide a diversity of safe and affordable products and services to members.
“We appreciate the CFPB’s recognition in the proposal--and for specifically citing CUNA concerns--about the problems frivolous Telephone Consumer Protection Act class actions could create for small financial institutions as a result of there being no limit on statutory damages. CUNA plans to respond to the CFPB’s request for comment on whether there are compelling reasons to exclude particular causes of action from the proposed rule.
“We continue to evaluate the proposal.”