October 22, 2009

WASHINGTON - During consideration of H.R. 3126, legislation to establish a Consumer Financial Protection Agency (CFPA), Democrats on the House Financial Services Committee voted against two amendments offered by Republicans that would prevent abusive litigation.

One amendment offered by Congressman Patrick McHenry (R-NC) would prevent abusive litigation by ensuring that the legislation does not create any new private rights of action. The McHenry amendment would leave enforcement of rules, regulations, and duties with the regulators, to ensure that these rules are implemented consistently and fairly.

The Democrats' legislation confers virtually unlimited discretion on the CFPA, empowering the Director to prescribe hundreds of new regulations and issue orders and guidance that could potentially restructure the entire financial landscape. Only one group of constituents benefits from using private rights of action to enforce these hundreds of new regulations:  the trial lawyers who would gain from chasing million-dollar lawsuits.

Another amendment, offered by Congressman Tom Price (R-GA) would remove a provision in the legislation permitting the Director to prohibit arbitration of disputes between consumers and the providers of financial services and products.

Binding arbitration is a cost effective and efficient method of resolving contractual disputes between consumers and financial institutions and typically benefits consumers. By providing consumers and financial institutions with a cheaper and quicker alternative to litigation, arbitration can help ease the burden on our over-worked judicial system and help unclog the dockets of our nation's state and federal courts.

As a result of the Democrats voting against the McHenry and Price amendments, trial lawyers will gain from the legislation at the expense of consumers. Financial institutions seeking to avoid liability may simply refuse to offer innovative products, thereby constricting consumer credit at a time when our nation's economy needs it the most. Financial institutions that take the risk of being sued would likely be forced to raise the prices of the services they offer to reflect the costs that runaway litigation could impose upon them, thereby punishing consumers with higher credit costs.

The vote on the McHenry amendment was 28-41.  The vote on the Price amendment was 27-42.