Consumer Financial Services
The CFPB's Arbitration Rule has been sent to the President's desk to join 14 other federal agency regulations that have been repealed under the Congressional Review Act (CRA). The disapproval resolution, which was passed by the House in July, was passed by the Senate late in the evening on October 24. The rule would have prohibited companies from using class action waivers in arbitration agreements.
Restraints on the CFPB Revisiting the Arbitration Rule
Under the CRA, the resolution of disapproval nullifies the finalized Arbitration Rule and prohibits the reissuing of the rule in substantially the same form. The CRA also prohibits the issuing of a new rule that is substantially the same unless that new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule under the CRA.
It bears noting that the boundaries of the CRA's prohibition on "substantially similar rulemaking" have not been fully explored in any court. Section 1028 of the Dodd-Frank Act, which directed the CFPB to conduct a study of arbitration agreements and authorized it to conduct the arbitration rulemaking, states that the Bureau "may prohibit or impose conditions or limitations on the use" of arbitration agreements. A broad prohibition on class action waivers across a wide array of consumer financial products and services, as set forth in the now-defunct Arbitration Rule, clearly seems to be off the table for any further CFPB regulations, without additional action by Congress. However, it is not certain that a condition or limitation on the use of arbitration agreements that does not involve class action waivers would be barred by the CRA.
It also remains to be seen whether the dispute regarding arbitration regulation on the federal level sparks any state-level action. The line of cases stemming from the Supreme Court's 2011 decision in AT&T Mobility LLC v. Concepcion has solidified the enforceability of arbitration agreements that include class action waivers. In its decision, however, the Court noted consumer-friendly aspects of AT&T's arbitration agreement, which cut against the argument that the provision was unconscionable. The spectrum of arbitration agreements (i.e., when, if ever, an arbitration agreement could be unconscionable under the Supreme Court's analysis) has largely gone untested; this lack of "testing" in the courts could renew an interest in and focus on arbitration agreements for private litigants in the future. It is also possible that state attorneys general, 19 of whom opposed efforts to nullify the Arbitration Rule, or the CFPB itself, could take action under state or federal prohibitions of unfair, deceptive, or abusive acts or practices regarding aspects of certain arbitration agreements.
Will the Payday Rule Survive?
The CFPB has an additional final rule that is potentially at risk of congressional disapproval, the Payday, Vehicle Title, and Certain High-Cost Installment Loans Rule (Payday Rule). Industry has been vocal in criticizing the Payday Rule, but neither the House nor the Senate has initiated the expedited repeal process under the CRA.
Unlike the Arbitration Rule, which was finalized in a form nearly identical to that of the proposal, the final Payday Rule included an important revision that exempted most longer-term installment loans from the ability-to-repay analysis; this cools some significant industry opposition to the rule. The politics around the Payday Rule are markedly different from that of the Arbitration Rule, which pitted large financial service providers against the plaintiffs' class-action bar and consumers. The alliances around short-term, small-dollar lending are very different and can sometimes make for strange bedfellows across party lines. Congress has 60 congressional days to vote on a disapproval resolution regarding the Payday Rule, and, so far, all signs indicate that any decision regarding the Payday Rule will be made close to this deadline.
* * * * * * * * * *
The Arbitration Rule outcome shows that industry engagement, including coalition building, is a critical component of the CRA process.