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CFPB’s Arbitration Rule Came in with a Roar, Leaves with a Whisper

CapitolBy Nicolas G. Keller

On Wednesday, November 1, during a closed meeting, President Trump quietly signed into law House Joint Resolution 111, thereby voiding the Consumer Financial Protection Bureau’s (CFPB) arbitration agreements rule.[1]  That rule, which we wrote about in more detail here, was promulgated in July, and, starting in early 2018, would have precluded providers of a variety of consumer financial products and services from including class action waivers in their contracts with consumers.  

Under current law, providers of most consumer financial products are free to preclude their customers from pursuing claims on a class basis.[2]  This practice has been criticized as unfairly limiting the legal recourse available to consumers—the CFPB’s rule was aimed at addressing this concern, but the rule came under fire for, among other things, potentially increasing the risk of frivolous litigation.[3]  In order to prevent the CFPB’s rule from going into effect, House of Representatives member Keith J. Rothfus introduced Resolution 111, and the House passed the Resolution by a vote of 231 to 190 in late July.

Last week, the Senate passed the Resolution by a vote of 51 to 50, with Vice President Pence breaking the tie.[4]  President Trump then signed the Resolution, over a plea from CFPB Director Richard Cordray on Monday to instead veto the Resolution.[5]  Cordray reportedly wrote, in part, "I think you really don't like to see American families, including veterans and service members, get cheated out of their hard-earned money and be left helpless to fight back,” and "I know that some have made elaborate arguments to pretend like that is not what is happening, [b]ut you are a smart man, and I think we both know what is really happening here."[6]

President Trump signing the Resolution was expected, however, given the White House’s repeated and explicit indications that the administration supported the Resolution.[7]  For instance, in July, the Executive Office of the President issued a statement on Resolution 111, declaring, in part, “If allowed to take effect, the CFPB’s harmful rule would benefit trial lawyers by increasing frivolous class-action lawsuits; harm consumers by denying them the full benefits and efficiencies of arbitration; and hurt financial institutions by increasing litigation expenses and compliance costs (particularly for community and mid-sized institutions).”[8]       

The legal authority for the Resolution stems from the Congressional Review Act (CRA), enacted in 1996 to increase congressional oversight of agency rulemaking.  Used only once prior to the current congressional session, the CRA has now been used fifteen times by the current Congress and administration to nullify agency rules.[9] 

In light of the significant uptick in the use of the CRA, query whether CFPB’s payday loan rule, which was promulgated early last month and seeks to stop so-called “payday debt traps,”[10] will face a fate similar to that of the arbitration rule. 

 

[1] Office of the Press Secretary, President Donald J. Trump Signs H.J.Res. 111 into Law, The White House (November 1, 2017), www.whitehouse.gov/the-press-office/2017/11/01/president-donald-j-trump-signs-hjres-111-law.

[2] See Am. Exp. Co. v. Italian Colors Rest., 133 S. Ct. 2304 (2013); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 131 S. Ct. 1740 (2011).

[3] Tom Cotton & Keith Rothfus, Repeal the CFPB’s Anti-Consumer Ban on Mandatory Arbitration Clauses (July 25, 2017), www.forbes.com/sites/realspin/2017/07/25/repeal-the-cfpbs-anti-consumer-ban-on-mandatory-arbitration-clauses/#2901f0117fb0.

[4] H.J.Res.111 – Providing for Congressional Disapproval under Chapter 8 of Title 5, United States Code, of the Rule Submitted by Bureau of Consumer Financial Protection Relating to “Arbitration Agreements, www.congress.gov/bill/115th-congress/house-joint-resolution/111/actions (last visited November 2, 2017).

[5] Sylvan Lane, Regulator Pens Personal Letter Asking Trump to Spare Arbitration Rule (Oc. 30, 2017), https://thehill.com/policy/finance/357875-consumer-bureau-director-writes-trump-personal-plea-to-spare-arbitration-rule.

[6] Lorraine Woellert, Cordray Calls on Trump to Veto Arbitration Override (Oct. 30, 2017), www.politico.com/story/2017/10/30/cordray-trump-veto-arbitration-override-244334.

[7] Executive Office of the President, Statement of Administration Policy:  H.J. Res. 111 – Disapproving the Rule, Submitted by the Consumer Financial Protection Bureau, Known as the Arbitration Agreements Rule, Office of Mgmt. and Budget (July 24, 2017), available at www.whitehouse.gov/sites/whitehouse.gov/files/omb/saphj111hr_20170724.pdf (“If H.J. Res. 111 were presented to the President in its current form, his advisors would recommend that he sign it into law.”); Office of the Press Secretary, Statement Regarding Senate Passage of H.J. Res. 111, The White House (October 24, 2017), www.whitehouse.gov/the-press-office/2017/10/24/statement-regarding-senate-passage-hj-res-111 (“President Donald J. Trump applauds the Congress for passing H.J. Res. 111, Disapproving of the Consumer Financial Protection Bureau's (CFPB) Arbitration Agreements Rule.”). 

[8] Executive Office of the President, Statement of Administration Policy:  H.J. Res. 111 – Disapproving the Rule, Submitted by the Consumer Financial Protection Bureau, Known as the Arbitration Agreements Rule, Office of Mgmt. and Budget (July 24, 2017).

[9] See Congressional Review Act FAQs, U.S. Gov’t Accountability Office, www.gao.gov/legal/congressional-review-act/faq (last visited November 2, 2017).

[10] CFPB Finalizes Rule To Stop Payday Debt Traps, Consumer Fin. Prot. Bureau (Oct. 5, 2017), www.consumerfinance.gov/about-us/newsroom/cfpb-finalizes-rule-stop-payday-debt-traps/.