White House and business sector battle over arbitration

The Obama administration and U.S. business leaders are poised to add a new front to their escalated battle over mergers and corporate tax inversions: financial arbitration clauses.

Capping months of study on the issue, the U.S. Consumer Financial Protection Bureau on Thursday is scheduled to propose a rule that would restrict banks, credit card companies and other businesses from requiring customers to pursue disputes through arbitration, rather than group lawsuits in the court system. The CFPB is an independent regulator whose director is appointed by the president.

CFPB may let you sue your bank instead of going to arbitration

“Signing up for a credit card or opening a bank account can often mean signing away your right to take the company to court if things go wrong,” said CFPB Director Richard Cordray, who is scheduled to announce the proposal during a public hearing in New Mexico. “Our proposal seeks comment on whether to ban this contract gotcha that effectively denies groups of consumers the right to seek justice and relief for wrongdoing.”

The proposal would prevent providers of some financial products from barring consumer efforts to file class-action lawsuits in a bid to resolve disputes. The proposal would also require some financial service providers to give the consumer agency records involving arbitration proceedings with customers.

Publication of the new proposal in the Federal Register would start a 90-day period for public comment. But businesses large and small and supporters of tougher federal regulation have already started skirmishing.

"The proposed rule is a wolf in sheep’s clothing," said Lisa Rickard and David Hirschmann in a statement issued by markets and legal affiliates of the U.S. Chamber of Commerce, the business sector's voice in Washington, D.C. "The CFPB’s own study concludes that arbitration empowers consumers to resolve disputes easily and quickly on their own without having to hire a lawyer. Nevertheless, the CFPB’s rule will have the practical effect of eliminating arbitration for most consumers."

Several advocates of the proposal, including Public Justice and the National Association of Consumer Advocate, signaled agreement with the CFPB plan. "Forced arbitration is a get-out-of-jail-free card that lets banks, payday lenders and debt relief scammers avoid accountability when they violate the law,” said Lauren Saunders, associate director of the National Consumer Law Center.

Obama administration takes aim at corporate mergers, inversions

The budding showdown escalates the ongoing Washington vs. business sector battle over antitrust action against some corporate mergers and tougher regulations that block U.S. companies from shifting their headquarters overseas in an effort to lower their tax bills.

In April alone, the Department of the Treasury issued new rules that torpedoed U.S. pharmaceutical giant Pfizer's $160 billion merger with Ireland-headquartered rival Allergan. Similarly, the Department of Justice filed a federal lawsuit aimed at blocking oilfield services firm Halliburton's $34 billion acquisition of rival Baker Hughes. The companies scrapped the deal on Monday.

More than $415 billion in proposed 2016 corporate deals had been withdrawn globally as of mid-April, according to data from S&P Global Market Intelligence. The volume topped the $303 billion in global deals scrapped during the same period in 2007, the peak year for canceled transactions, the data showed.