On July 25, the United States House of Representatives voted to repeal the Consumer Financial Protection Bureau’s latest arbitration rule.
As we reported previously, the CFPB issued a final rule banning class action waivers in arbitration provisions for covered entities, as well as requiring the covered entities to provide information to the CFPB regarding any efforts to compel arbitration. This rule is of significance to any financial services company that utilizes consumer contracts containing arbitration provisions. The rule is scheduled to take effect in mid-2018 and, if implemented, will govern contracts executed after that time.
After passage of the rule, there was an outcry of criticism from businesses and Republican congressional representatives alike. Institution of the rule contradicts longstanding federal policy – as repeatedly expressed by the Supreme Court in interpreting the Financial Administration Act (“FAA”) – of enforcing arbitration provisions as written. The rule also increases legal costs for businesses that have relied on federal policy upholding arbitration terms in a contract. These increased litigation costs will be passed on to consumers.
Republican members of the House of Representatives agree that the rule would negatively affect businesses, and in a 231-190 party-line vote, the House voted to repeal the CFPB’s rule under the Congressional Review Act (“CRA”).
House Democrats argued that the rule protects Americans’ right to seek redress of harms in court, while Republicans argued otherwise. Republican Rep. Keith Rothfus (PA-12) specifically noted that the rule would increase litigation costs while providing no benefits to consumers.
The resolution to repeal the CFPB’s rule has the White House’s blessing. In a statement, the White House noted, “If allowed to take effect, the CFPB’s harmful Rule would benefit trial lawyers by increasing frivolous class action lawsuits; harm consumers by denying them the full benefits and efficiencies of arbitration; and hurt financial institutions by increasing litigation expenses and compliance costs, particularly for community and mid-sized institutions.”
With the passage of the repeal measure in the House, the measure goes to the Senate for approval.
Under the CRA, Congress is required to vote on resolutions disapproving a rule within 60 days of the rule’s publication in the Federal Register. Once Congress votes to disapprove a regulation and the President signs the resolution, regulators are barred from creating a regulation similar to the one nullified by Congress without express congressional authorization.
We will continue to monitor and report on developments as this resolution proceeds to the Senate.