President Donald Trump signed Congress's joint resolution of disapproval to revoke the Consumer Financial Protection Bureau's (CFPB) Arbitration Rule today, killing the regulation just months after the rule was announced.
The Arbitration Rule prohibited what have become generally standard mandatory arbitration clauses in contracts for consumer financial products regulated by the CFPB. Banks and other financial services companies offering CFPB covered products would have been prevented from enforcing these provisions which require consumers to pursue resolution through less costly arbitration, rather than class action litigation.
To revoke the Arbitration Rule, Congress exercised its authority under the Congressional Review Act (CRA), which allows Congress to overturn a broad range of regulatory rules issued by federal agencies by enacting a joint resolution of disapproval within 60 legislative days of the rules being announced. The House of Representatives voted to repeal the rule back in July, with the Senate following suit on the night of October 25th. Vice President Mike Pence cast the tiebreaking vote in the Senate.
The repeal of the Arbitration Rule is one of the more significant legislative victories for Congressional Republicans this year in their efforts to roll back financial regulations and diminish the authority of the CFPB. There is speculation that Republicans may soon attempt to take similar action on the CFPB's Payday Lending Rule, issued on October 5, 2017, which, among other things, would (1) require lenders making covered short-term or longer-term balloon payment loans, including payday loans, to assess a borrower's ability to repay the loan prior to lending and (2) prohibit lenders from withdrawing payments from consumers' accounts after two consecutive payments have failed unless the consumer provides new authorization. The Payday Lending Rule has been met with comparable disfavor from the industry.
There is no reason to believe efforts to roll back financial regulations will end there, however. The Government Accountability Office's October 19th decision that leveraged lending guidance was a "rule" under the CRA and therefore subject to Congressional review appears to have potentially opened the door to Congressional review of a broad scope of guidelines issued by US bank regulators – everything from capital requirements to vendor management guidelines to governance.