CFPB Director Richard Cordray speaking at the U.S. Chamber of Commerce’s 11th Annual Capital Markets Summit. (Photo: Diego M. Radzinschi/ALM)
On a Tuesday in early November, representatives of American Express, Barclays and Discover met with 10 members of the Consumer Financial Protection Bureau staff to discuss their concern about the agency’s proposed rule to restrict corporate efforts to block class actions.
The pitch from the credit card companies called for carving out a broad exception to a proposal that—if finalized in its current form—would ban forced arbitration agreements that prevent consumers from filing class actions.
According to a summary of the meeting, the companies pushed for an exception for “certain matters where government intervention, a company’s self-identification to the CFPB, or corrective actions have addressed alleged practices that are the subject of the class action.” In other words, they wanted to be able to stave off any class actions arising from conduct that had already caught the eye of regulators.
In the view of at least one of the companies, “there was no need for a class action if the subject of the class action is subject to a public enforcement or supervisory action,” according to the meeting summary, which was posted online last month. (American Express, Barclays and Discover declined to comment.)
The question hanging over the CFPB’s arbitration rule—a proposal that drew tens of thousands of comments from consumer and business advocates—is less now about the finer points of the final rule than about whether the regulations will ever see the light of day at all.
President Donald Trump and Republican lawmakers are erasing a host of Obama-era rules through the Congressional Review Act—a statutory tool that, before the Trump administration, had only been used once in its 21-year history to roll back a regulation. The law gives Congress a window of 60 legislative days—after an agency has transmitted a new rule to Capitol Hill—to enact a disapproval resolution.
Since Trump’s election, speculation has swirled about whether a push to publicly roll out the arbitration rule would galvanize the White House into taking the legally perilous step of firing the CFPB’s director, Richard Cordray, before his five-year term expires in July 2018. A case pending in the U.S. Court of Appeals for the D.C. Circuit confronts whether the president should have the power to remove the director at will, not just for cause.
The arbitration rule presents a longer-term concern. If the rule is voided by the Congressional Review Act, the CFPB would be prevented from enacting a “substantially similar” regulation unless it is supported by a new statute. Such a setback would indefinitely handcuff the agency, stymieing its ability to limit forced-arbitration agreements—often found in the fine print of consumer contracts—that the bureau has described as “contract gotchas.”
"All the opponents of the rule need is a simple majority vote. Clearly they have that, and the president would be expected to sign it,” said Buckley Sandler counsel Kathleen Ryan, a former deputy assistant director in the CFPB’s office of regulations. “From the bureau’s perspective, the real blow to the cause is, once a rule is struck down that way, it can’t be reintroduced in a similar form ever unless there’s new legislation.”
Ryan added: “That’s the rock and the hard place that they’re stuck between.”
For the CFPB, the threat of a congressional override is not abstract.
In February, Republican lawmakers in the House and Senate proposed bills to tear up the CFPB’s prepaid card rule—the first set of sweeping federal regulations that target a fast-growing market that caters to millions of consumers, including many who have limited or no access to traditional bank accounts.
The CFPB finalized the rule in October and has proposed delaying the effective date by six months—from October 2017 to April 2018—citing industry concerns about complying in time.
Clash on Capitol Hill
Supporters of the CFPB’s arbitration rule are already turning their attention to Capitol Hill.
“We’ve shifted from talking to folks at the CFPB and are now focusing on preserving what we can by not having the [Congressional Review Act] challenge be successful,” said Amanda Werner, a campaign manager for Public Citizen and Americans for Financial Reform. “We’re trying to talk to lawmakers and make them realize this is something the American people are not going to tolerate.”
It remains unclear exactly when the CFPB will finalize the arbitration rule and face the risk of a congressional override. The CFPB was once expected to release the final rule in February 2017. In its most recent rulemaking agenda, the CFPB said it was still reviewing comments as it “considers development of a final rule for spring 2017.” A CFPB spokesman said Thursday he had no update on the agency’s timeline for finalizing the rule.
Diane Thompson, a top official in the CFPB’s office of regulations, said at a recent conference in New York City that it was “too speculative” to estimate when the agency would finalize the arbitration rule, according to a blog post by the law firm Ballard Spahr.
Critics argue the CFPB’s proposed ban on class-action waivers would eliminate arbitration agreements, depriving consumers of a less-expensive, expedited form of dispute resolution.
Along with American Express, the U.S. Chamber of Commerce has devoted significant resources toward rolling back the rule. In the last three months of 2016, the chamber’s Center for Capital Markets Competitiveness and Institute for Legal Reform spent a combined $170,000 on firms whose lobbying efforts included at least some work on the CFPB’s arbitration rule.
In a comment last year, the U.S. Chamber of Commerce urged the CFPB to “go back to the drawing board.”
Tom Quaadman, executive vice president of the chamber’s Center for Capital Markets Competitiveness, said he’s seen the CFPB’s urgency die down of late. Before the election, he said, the CFPB was “trying to drive toward a final rule and trying to do that fairly quickly.”
“I think they’ve been trying to, since Nov. 8, assess the landscape and figure out whether or not it’s within the realm of possibility moving forward with a rule like that,” Quaadman said.
On the other hand, consumer advocacy groups have not backed down. The week Trump was sworn in, staff from Public Citizen, Americans for Financial Reform and Public Justice urged the CFPB to finalize the rule “as soon as possible,” according to a readout of the Jan. 17 meeting.
Paul Bland, executive director of Public Justice, said in a recent interview that the CFPB has “no good reason not to go forward with the rule.”
“As far as I’m concerned, they might as well do what’s right,” he said.
Meanwhile, U.S. Sen. Sherrod Brown of Ohio, the top Democrat on the Senate banking committee, has pledged to defend the arbitration rule against any efforts to undo it.
“Consumers deserve the right to have their day in court when they’ve been wronged, but many don’t realize they’ve lost that right through forced arbitration. The CFPB’s proposal to ban this unjust and unfair practice is a major victory for consumers,” he told the NLJ in a prepared statement. “I'll keep pushing the CFPB to finalize the rule as soon as possible, and will fight against efforts to weaken it.”