By Brandon Schall, Staff Writer
Banking and business groups got a big “win” after President Trump signed the repeal of the Consumer Financial Protection Bureau’s (“CFPB”) rule on forced arbitration.[1] The CFPB had been working on rules for more than four years to make it easier for consumers to file or join an existing lawsuit if they are harmed by a business.[2] The CFPB proposed rules would have eliminated a forced arbitration rule written into many contracts with consumers.[3] On July 10, 2017, the CFPB released their final arbitration rule to protect consumers.[4]
Despite the release of the proposed rule by the CFPB, Congress has the right to repeal any proposed rules by an agency within sixty legislative days under the Congressional Review Act of 1996.[5] In 1996, Congress passed the Congressional Review Act (“CRA”), which required that proposed federal agency rules be submitted to Congress before the rule could take effect, allowing Congress to allow the rules to go into law or to pass a joint resolution of disapproval of the rule.[6]
Congress and President Trump have used this rule to stop the implementation of several rules, including the CFPB rule stopping mandatory arbitration. Former Presidents Bush and Obama have also used the CRA to repeal rules that did not align with their administration goals.
On October 24, 2017, Vice President Mike Pence cast the tie-breaking Senatorial vote to repeal the CFPB arbitration rule.[7] The vote was largely along a party line vote; however, both Lindsey Graham (R-SC) and John Kennedy (R-LA), opposing the bill, voting with the Democrats in opposition to the resolution.[8]
The United States House of Representatives previously voted in July to repeal the proposed rules.[9] Thus, President Trump had to decide whether to allow the proposed rules to proceed and go into effect or to sign the joint resolution passed by Congress, repealing the rules.
After the vote in the Senate, CFPB Director Richard Cordray, made a public plea to President Trump to save the arbitration rule.[10] While the public plea was an unusual attempt by an acting agency director to try to publicly persuade the President to uphold the proposed rule. Despite the public plea, he was unsuccessful. On November 1, 2017, President Trump signed a repeal of the CFPB rule.[11]
The arbitration rule proposed by CFPB has caused contention since passed. Democrats have supported the rule, arguing to their colleagues in the House and the Senate that the rule would protect consumers. Cordray said that forced arbitration would take away consumers’ right to their day in court.[12] Congressional Democrats reiterated this sentiment during debates, while Republicans and the financial industry have said that the rule was about protecting trial lawyers and the rule went too far.[13] Further, Richard Hunt, the Consumer Bankers Association’s President and CEO, said that allowing people to sign on to class action lawsuits would add additional time in court, instead of a speedier arbitration process.[14]
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) required the CFPB to study the use of mandatory arbitration clauses. A March 2015 study showed that “credit card issuers representing more than half of all credit card debt” used mandatory arbitration.[15] The study also showed that three out of four consumers did not know whether their credit card agreement required arbitration or allowed them to go to court for their disputes.[16]
The data reflecting consumer’s lack of knowledge about their legal rights was a key fact in pushing for the proposed rule change.
Additionally, the study showed that only two percent of consumers with credit cards would consult an attorney for small-dollar disputes.[17] On the other hand, people in class action lawsuits received more money, and courts required the financial industry to address the harmful practices, protecting future consumers, while those individuals in arbitration, received much less money and the industry was not required to change their practices.[18] In response, the rule would have banned companies from using mandatory arbitration clauses. [19]
Congress and the White House used the CRA fourteen times earlier this year to overturn regulations that where proposed at the end of President Obama administration.[20] Since CRA requires that Congress pass a joint resolution within sixty legislative days of the proposed rule, many people believed that the CRA would no longer be used this late into President Trump’s term.[21] Many people failed to consider that the CRA could be used for independent agencies as well.[22]
The CFPB Director Cordray was appointed by President Obama and is in office for a specific term, regardless of the President.[23] Thus, Cordray can only be removed from office “for cause.”[24] As a way to limit former President Obama’s policies from becoming law, the CRA is a way for Republicans to block proposed rules from independent agencies until they can nominate a new director for the CFPB. In the aftermath of the President Trump signing the repeal of the CFPB proposed rules, Cordray announced that he would resign as director of the agency.[25]
The CRA is likely to be used by the White House and Congress a few more times, until all of President Obama’s appointees’ terms expire or they resign. Regardless of the reasons, why or how the rule did not go into effect, the financial industry is likely to continue to use mandatory arbitration to resolve disputes with consumers.
Sources
[1] http://thehill.com/policy/finance/358297-trump-repeals-consumer-bureau-arbitration-rule-joined-by-heads-of-banking
[2] https://www.consumerfinance.gov/arbitration-rule/
[3] Id.
[4] https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-rule-ban-companies-using-arbitration-clauses-deny-groups-people-their-day-court/
[5] https://www.senate.gov/CRSpubs/316e2dc1-fc69-43cc-979a-dfc24d784c08.pdf
[6] Id.
[7] http://www.cnn.com/2017/10/24/politics/senate-cfpb-arbitration-repeal/index.html
[8] Id.
[9] http://thehill.com/policy/finance/343652-house-votes-to-repeal-consumer-financial-protection-bureau-rule
[10] https://www.housingwire.com/articles/41695-cordray-pleads-directly-with-trump-to-save-cfpbs-arbitration-rule
[11] http://thehill.com/policy/finance/358297-trump-repeals-consumer-bureau-arbitration-rule-joined-by-heads-of-banking
[12] Id.
[13] Id.
[14] Id.
[15] https://www.consumerfinance.gov/about-us/newsroom/cfpb-issues-rule-ban-companies-using-arbitration-clauses-deny-groups-people-their-day-court/
[16] Id.
[17] Id.
[18] Id.
[19] Id.
[20] http://www.rstreet.org/2017/11/01/congress-uses-the-congressional-review-act-to-abolish-another-regulation/
[21] Id.
[22] Id.
[23] Id.
[24] https://www.oyez.org/cases/1900-1940/295us602
[25] https://www.politico.com/story/2017/11/15/richard-cordray-resigns-consumer-financial-protection-bureau-244933
