The Consumer Financial Protection Bureau (CFPB), created in the wake of the 2008 financial crisis, is typically portrayed as a federal agency that protects the little guy from powerful big banks. But reality looks much different. For example, in May the agency proposed new rules to prohibit the use of arbitration—the legal process in which individual consumers and financial institutions avoid costly litigation by working to solve disputes with the help of third parties.

These rules have long been in the works. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, directed the agency to conduct an objective study of arbitration and propose rules based on its findings. Nearly six years later, the agency’s conclusions are little more than a handout to class action lawyers, with no actual benefit to consumers.

The final rule bans financial institutions from including mandatory binding arbitration clauses in their contacts. This upends the legal system that has long governed the industry. It opens banks to countless class action lawsuits, with virtually no corresponding benefit to the consumer. And it will almost certainly drive up the cost of bank loans and other financial products that millions of Americans depend on.

So what data does the agency use to justify its claims? To paraphrase Mark Twain, there are lies, damn lies, and then there are the CFPB’s statistics.

The data the agency collected showed that arbitration in most cases was quicker and actually provided better outcomes for the consumer. Perhaps surprisingly, arbitration achieves these outcomes even though consumers normally do not have attorneys present…

The study the CFPB conducted to justify its arbitration guidelines is exactly what the Information Quality Act was supposed to prevent. The final rule is based on junk science rather than sound research. It will harm the economy and millions of Americans while enriching a lucky few at law firms. So much for protecting the little guy. Read More