August 4, 2017

CFPB’s Arbitration Rule Is Challenged Under the CRA

3 min

Congressional Republicans in both chambers of Congress recently initiated the process under the Congressional Review Act (CRA) to nullify the Consumer Financial Protection Bureau's (CFPB) recently released rule governing the use of arbitration agreements for certain consumer financial products.

On July 25, in a vote that followed party lines, the House of Representatives passed the resolution of disapproval that nullifies the CFPB's rule in its entirety. Moreover, in a Statement of Administration Policy, the Administration backed efforts to nullify the Arbitration Rule (emphasizing that increases in litigation and compliance costs resulting from the final rule would be borne by consumers) and argued that the rule is at odds with the policy expressed by Congress in the Federal Arbitration Act ("FAA").

Focus now turns to the Senate, where the outcome is less certain, as several key Republicans are still undecided. As of the time of publication, the undecided Republicans included Senator Collins (R-ME), Senator Graham (R-SC), and Senator Murkowski (R-AK). Recall that under the Congressional Review Act, the Senate is able to pass legislation with a simple majority and is not subject to the filibuster rules that would have required a 60-vote threshold (and thereby several Democrats) to end debate and bring the bill to the floor. The next step is for the Senate to the do the same; however, it is unclear if they have the 51 votes necessary to nullify the rule.

Congress has roughly 60 days from July 13, 2017 to pass the CRA resolution. Depending on the August recess and the number of session days in September, the window to nullify the rule could expire in late October.

If successful, this use of the CRA will be the fifteenth time this Congress has overturned a rule, and the first time it has overturned a rule relating to the CFPB. This CRA tool will likely have limited utility on a go-forward basis; as Administration appointees take command of the regulatory agencies, they presumably will not be finalizing rules that are expected to be rejected by a majority of Congress.

What are the additional potential impacts?

(1) With the payday rule expected at any time, the CFPB is now acutely aware that its regulatory agenda could be undermined by the Republican-majority Congress.

(2) A key provision of the CRA prohibits the CFPB from proposing any rule that is "substantially similar" to the nullified rule, unless Congress gives it new and explicit authority to do so. This means that if the Arbitration Rule is nullified under the CRA, covered arbitration agreement provisions would likely continue to be permitted on a going-forward basis for the foreseeable future.


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Related Articles and Publications:

CFPB Issues Final "Arbitration Agreements Rule:" New CFPB Rule Bans Class Action Bars in Arbitration Clauses 

Major Rules Promulgated Under the Congressional Review Act Since June 2, 2016