In a major victory for community banks, the United States Senate voted Tuesday evening to overturn the Consumer Financial Protection Bureau’s (CFPB) controversial Arbitration Rule (Rule) which was set to take effect in March. The United States House of Representatives voted to rescind the Rule in July. Both votes in the House and Senate were generally along party lines with Republicans voting in favor and Democrats voting against the repeal.
The Rule would have prohibited financial institutions from including a clause in their agreements which would require consumers to use binding arbitration versus litigating their grievances in class-action lawsuits. Proponents of the repeal highlighted the more than one-hundred year tradition of arbitration, which is an alternate dispute resolution process that was cited as resolving differences more quickly and with greater financial gain to consumers. The Senate vote was deadlocked with 50 voting in favor and 50 voting against; so Vice President Mike Pence cast the deciding vote to repeal the Rule.
In July of 2017, the Community Bankers Association of Illinois (CBAI) joined with forty-one state banking trade associations in a letter to the Senate urging support for the repeal of the Arbitration Rule.The letter stated that “If the rule is allowed to stand, it will encourage the filing of frivolous class action lawsuits which have the potential to devastate community banks.” The letter concluded "With your support for S.J. Res. 47 [repeal of the Rule], arbitration will be preserved as a fair, and cost effective tool of dispute resolution. This is the best outcome for consumers, community banks, and the broader economy.” Read Joint Letter to the Senate.
October 25, 2017
In a September 12, 2017 comment letter to the Consumer Financial Protection Bureau, the Community Bankers Association of Illinois (CBAI) urged an exemption for community banks from the upcoming small business data collection rule. CBAI acknowledged that Section 1071 of the Dodd-Frank Act requires financial institutions to report information concerning credit applications made by women-owned, minority-owned, and small businesses in part to facilitate the enforcement of fair lending laws, and that the Bureau is currently focused on outreach to further its understanding of the small business lending market.Community banks currently control less than 20% of the nation’s deposits yet make approximately 50% of the small business loans. This large percentage of lending activity clearly indicates a high level of satisfaction by small businesses with community banks whose hallmark is treating their customers and communities fairly and with respect. This exemplary behavior by community banks in small business lending clearly requires that the Bureau focus its attention on the bad actors and the wrongdoers – not community banks. CBAI called on the Bureau to use its authority under the Dodd-Frank Act to exempt any class of entity from its rulemaking. Community banks are deserving of broad exemptions that the Bureau is able to grant to them under the law and CBAI urged the Bureau to exempt all community banks under the forthcoming small business data collection rule. Read Comment Letter.
In a September 21, 2017 comment letter to the Office of the Comptroller of the Currency (OCC), the Community Bankers Association of Illinois (CBAI) urged the agencies to completely exempt community banks from the Volcker Rule. CBAI appreciated the OCC’s statement that there is broad recognition that the final Volcker Rule should be improved both in design and application, and that many [including the U.S. Department of the Treasury] have argued that the final rule is overly complex and vague. CBAI stated that the community bank business model does not include the risky practices now prohibited by the Volcker Rule; it was the risky behavior of the largest banks and financial firms that led to the financial crisis; and a complete exemption for community banks is justified. Read Comment Letter.