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The Vault

October 26, 2017

Senate Overrules Consumer Financial Protection Bureau's Arbitration Rules

By Dowse Bradwell "Brad" Rustin, IV, Craig Nazzaro, Elizabeth A. DeVos

In a surprising 51-50 vote (Vice President Pence casting deciding vote), the Senate repealed a rule issued by the Consumer Financial Protection Bureau (CFPB) that would have prevented financial institutions from including mandatory arbitration provisions that limit class action lawsuits in their contracts with consumers.  Two Republican senators, Lindsey Graham (R-SC) and John Kennedy (R-LA) broke with the Republican party to side with Democrats in opposing the repeal.  All Democratic and Independent senators voted to keep the Rule in place.  The President has indicated that he will approve of the repeal noting that “[b]y repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy.” 

To overturn the Rule, the Senate used a fairly obscure procedure called the Congressional Review Act (CRA).  Prior to its use against the CFPB, Congress successfully employed the CRA on only one occasion—to overturn ergonomics standards issued by OSHA under the Clinton administration.  Under the procedure, the Congress, with presidential approval, can overturn regulatory rulemaking by a simple majority vote.  The House passed a similar repeal in July. 

Of particular note, under the CRA, the agency may not reissue the rule in “substantially the same form” or issue a “new rule that is substantially the same” as the disapproved rule, “unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”[1]  Though narrow in its scope, this restriction may block certain efforts by the CFPB to take further steps to limit or restrict arbitration and class action waivers in consumer finance contracts.      

Opposition to the Rule was widespread including a wide spectrum of industry groups opposing the Rule including the U.S. Department of the Treasury,[2] the U.S. Chamber of Commerce,[3] the American Bankers Association,[4] the National Association of Federally-Insured Credit Unions,[5] and the American Financial Services Association.[6] 

CFPB Director Cordray, widely expected to run for governor of Ohio, views the repeal as a major “setback for every consumer in this country.”  Many view the CRA as the latest weapon that Congress will use to limit the CFPB’s rulemaking authority under the Dodd–Frank Wall Street Reform and Consumer Protection Act.  The CFPB’s latest rulemaking, the Payday, Vehicle Title, and High-Cost Installment Loan Rule could be next in the crosshairs of Congress under its CRA powers.  As of today, the Senate has not placed a CRA review of the Payday Rule on its calendar.



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