Since last summer, Acting U.S. Comptroller of the Currency Keith A. Noreika and CFPB Director Richard Cordray have exchanged polar-opposite views on whether the CFPB’s final arbitration rule should be repealed.  Both are seeking to persuade Senators who may still be undecided as the deadline for Congressional Review Act action draws closer.

The debate began in July, when, as we reported, Acting Comptroller Noreika and Director Cordray exchanged a series of letters in which Mr. Noreika raised OCC concerns about the arbitration rule’s impact on the safety and soundness of the U.S. banking system.  Then, in late September, as we also reported, the OCC issued a report that contradicted key conclusions of the CFPB that supposedly supported the rule.  The CFPB did not find any statistically significant evidence of increases in the cost of consumer credit associated with banning arbitration clauses in credit card contracts.  However, the OCC, reviewing the same data, found “a strong probability of a significant increase in the cost of credit cards as a result of eliminating mandatory arbitration clauses.”  In particular, it found that there could be as high as a three-and-a-half percent annual percentage rate increase for consumers who would be affected by the rule, which translates to a 25 percent increase in credit costs.  In addition, the OCC stated that additional research would be required “to explore the potential effect on consumer payments, their ability to pay the higher cost and the potential for an increase in delinquencies, or changes in the availability of certain financial products intended to meet the financial needs of consumers.”

The Noreika-Cordray dispute has now escalated in the last few days.  In a recent op-ed in The Hill, Acting Comptroller Noreika argued forcefully and persuasively that the Senate should vacate the final arbitration rule because the CFPB has failed to provide data that support the rule and also “failed to disclose the costs to consumers that will likely result from the rule’s implementation.  Consumers deserve better, and so do small and regional banks.”  On the same day, Cordray  fired back, releasing a letter he had written to Senator Sherrod Brown that was highly critical of the OCC’s report and also argued that the rule does not threaten the safety and soundness of banks.  Attached to the letter was a 7-page memo from the CFPB’s Office of Research concluding that the OCC report rested on “incorrect statistical inference and a failure to correctly consider the full body of evidence.”   Yesterday, Director Cordray followed up with his own op-ed in The Hill calling the OCC’s data analysis “embarrassing” and characterizing Acting Comptroller Noreika’s safety and soundness concerns as “farfetched.”   Referring to a federal court lawsuit recently filed by industry groups to overturn the rule, Director Cordray concludes his article by stating, “The fight thus will now be decided in the courts and need not be decided in the Senate.”

If this were a prize fight (in Philadelphia we like the Rocky analogy), the championship belt should go to Acting Comptroller Noreika.  We are not professional statisticians, but to us it is just plain common sense that when 53,000 companies are expected to incur between $2.6 and $5.2 billion dollars in addition costs to handle 6,042 additional class actions spawned by the elimination of arbitration in the next five years and every five years thereafter — as the CFPB’s data clearly shows, consumers will pay more.  That simple truth is obscured by the CFPB’s research report, which tries to justify its attacks on the OCC by referring to “noisy” data and “p values.”

And that is what the Senate needs to keep in mind as the deadline for the CRA vote approaches: consumers will pay more unless the CFPB arbitration rule is repealed.  Contrary to Director Cordray’s remarks, the Senate vote is critical because tens of thousands of American businesses need clear and definitive guidance now on whether they need to prepare to be crushed by billions of dollars in defense costs that will go almost entirely to pay the fees of class action lawyers — while the average putative class member recovers an average of $32 if they are “lucky” enough to be in the 13% of class actions that returns anything to consumers.  Acting Comptroller Noreika delivered the knockout punch when he concluded in his op-ed: “Instead of mandating only one way to resolve disputes, consumers and banks should continue to have the option to resolve contractual differences in the same manner they do today … Consumers know for themselves what their best options are, and their regulators need to know that too.”