EDITORIAL: New arbitration rule is a sop to the trial lawyers

The Consumer Financial Protection Bureau, created by the Obama administration to assuage progressives in the wake of the financial meltdown, is one of the more powerful bureaucracies in Washington, with far-reaching authority to police financial institutions and other evil capitalists.

But so unchecked are the powers of its director, Richard Cordray, that a federal appeals court ruled last year that the bureau’s structure is unconstitutional because the agency acts as judge, jury and executioner with virtually no oversight.

An appeal to that case is pending, but Mr. Cordray hasn’t slowed down. On Monday, he announced a new rule barring financial institutions from demanding that customers use arbitration to settle complaints. While arguing that “everyone has a right to their day in court” sounds persuasive, arbitration can be a reasonable tool for dispute resolution, speeding the process and lowering costs for all involved.

In fact, Mr. Cordray’s diktat is a sop to the trial lawyers, a key Democratic constituency that contributes millions to the party’s coffers. “This bureaucratic rule will harm American consumers but thrill class-action lawyers,” noted Rep. Jeb Hensarling, the Texas Republican who chairs the House Financial Services Committee.

He’s right. Encouraging lawsuits will pad the pockets of well-heeled attorneys, while driving up the cost of financial products for the very people who can least afford it.

In the past six months, Republicans have used the Congressional Review Act, a 1994 law that gives Congress a modicum of control over the administrative state, to overturn a dozen regulations the Obama administration imposed on the way out the door. Here’s a perfect opportunity to give the act another workout.

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