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November 2017

Battle Over CFPB’s Future Comes to a Head

New-Development-IconBy Sean D. Nelson

Leandra English, the Deputy Director of the Consumer Financial Protection Bureau (“CFPB” or “Bureau”), filed a lawsuit in the U.S. District Court for the District of Columbia last night, November 26, seeking an emergency temporary restraining order against President Trump and John Michael Mulvaney, asserting that she is properly the new acting Director of the CFPB following former Director Richard Cordray’s resignation. 

On Friday, November 24, Cordray announced his resignation, and appointed English as acting Director.  The same day, however, President Trump appointed Mulvaney, currently the Director of the Office of Management and Budget (“OMB”), and a harsh critic of the CFPB, as acting Director. 

English’s complaint makes two primary arguments: (1) that the Dodd-Frank Act takes precedence over the Federal Vacancies Reform Act, such that the Deputy Director serves as acting Director in the absence of a Director of the CFPB; and (2) that Mulvaney’s appointment would be contrary to the CFPB’s status as an independent agency, since Mulvaney is already directly responsible to the President as head of OMB.  As reported by several news outlets, both Mulvaney and English have sent staff-wide emails announcing themselves as acting Director.  The CFPB’s General Counsel, who was appointed by Cordray, released an opinion on Sunday that Mulvaney is properly the acting Director under the Vacancies Reform Act. 

The current dispute continues the increasingly politicized battle over the CFPB, and the Court’s decision on the Bureau’s next leader is likely to have a profound effect on its future.

Confidentiality Provision In Arbitration Agreement Held Unconscionable

Coins-bankBy Howard S. Suskin

The U.S. Court of Appeals for the Eleventh Circuit concluded that a confidentiality provision in an arbitration clause in a bank account holder agreement was substantively unconscionable.  Larsen v. Citibank FSB, 871 F.3d 1295 (11th Cir. Sep. 26, 2017).    The case concerned a putative class of account holders who challenged the bank’s overdraft policy.   The arbitration clause in the account holder agreement required both parties to keep confidential any decision of an arbitrator.   The account holder argued that this provision disproportionately favored the bank as a repeat participant in the arbitration process.  The court agreed, concluding that where the outcomes of prior arbitration proceedings remain concealed, as the arbitration clause purported to require, prospective claimants have little context in which to assess the value of their cases, to avoid repeating past claimants’ mistakes, or to leverage prior successes.  The court further reasoned that the information disadvantage that the bank holds at the outset of a dispute may have the effect of discouraging consumers from pursuing valid claims.  The court concluded that severing the confidentiality clause would not significantly alter the tone or nature of arbitration between the account holders and the bank.   Accordingly, the court severed the confidentiality clause and enforced the remainder of the clause.     

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]

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