On Tuesday, October 24, 2017, the Senate voted to nullify the Consumer Financial Protection Bureau’s (“CFPB”) arbitration rule (the “Rule”) in a 51-50 vote. Only two Republicans voted against the measure – Lindsey Graham (SC) and John Kennedy (LA). President Trump praised the vote, saying that he will sign the resolution when it reaches his desk. The Senate vote ensures that the arbitration Rule will not take effect.

The Bureau’s Arbitration Rule

On July 10, 2017, the CFPB issued its long-awaited final Rule banning class action waivers in arbitration provisions for covered entities. In addition, the Rule required covered entities to provide information to the Bureau regarding any efforts to compel arbitration. The Rule was slated to take effect in early 2018.

Subject to certain enumerated exemptions, the Rule applied to most “consumer financial products and services” that the CFPB oversees, including those that involve lending money, storing money, and moving or exchanging money, as well as to the “affiliates” of such companies when the “affiliate is acting as that person’s service provider.”

The Rule would have prohibited a provider from relying on a pre-dispute arbitration agreement entered into after the compliance date with respect to any aspect of a class action that concerns any covered consumer financial product or service.

Further, the Rule included a requirement that providers who used pre-dispute arbitration agreements to submit to the CFPB certain records relating to arbitral and court proceedings. The Bureau intended to use the information to continue monitoring such proceedings for developments that implicated consumer protection concerns.

Procedural History of the Challenge

On July 25, 2017, only two weeks after the Bureau issued the Rule, the House of Representatives voted to repeal the Rule under the Congressional Review Act, which permits Congress to overturn regulations with a simple majority vote. Republican representatives argued that the Rule would negatively affect business, while House Democrats countered that the Rule protects Americans’ right to seek redress of harms in court. In the weeks leading up to the Senate’s vote, Democratic AGs from around the nation urged lawmakers to vote against the measure and consumer advocates branded the legislation as a boon to financial institutions. Meanwhile, the Department of the Treasury released a report critical of the Rule, claiming that it rested on a shaky foundation of cherry-picked data. The Senate approved the repeal on October 24, 2017, in another party-line vote.

Practical Takeaways

The impending March 2018 deadline imposed by the Rule has now been lifted by Congress’s invalidation of the Rule. Going forward, the struggle between some state courts and the Supreme Court of the United States over state law limitations on the enforceability of arbitration agreements under the Federal Arbitration Act (FAA) likely will continue indefinitely. As illustrated most recently in DIRECTV v. Imburgia, 136 S. Ct. 463 (2015), the Supreme Court has repeatedly reversed state court refusals to enforce arbitration agreements, applying the broad pro-arbitration policy embodied in the FAA. Some States and State courts, on the other hand, have attempted to limit arbitration under state law. A notable recent example is California’s SB 33, which permits an existing customer of a bank to sue a depository bank when a fraudulent account is opened unknowingly in the consumer’s name. With the invalidation of the Rule, this struggle will continue.

Consumer-facing companies that do not have an arbitration program, or a program that has not been recently refreshed, might now consider adding or updating arbitration clauses to their agreements.

Troutman Sanders advises clients both within and outside the CFPB’s authority in developing and administering consumer arbitration agreements, and has a nationwide defense practice representing financial institutions and other consumer-facing companies in many types of class actions and individual claims. We will continue to monitor these regulatory developments.

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Photo of Alan D. Wingfield Alan D. Wingfield

Alan Wingfield helps consumer-facing clients navigate compliance, litigation and regulatory risks posed by the complex web of state and federal consumer protection laws. He is a trusted advisor and tireless advocate, helping clients develop practical compliance and dispute-resolution strategies.

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Brooke Conkle offers consumer-facing companies compliance counseling and litigation services to help them address federal and state consumer protection laws. Recognizing the challenges facing financial services companies, she provides in-depth analysis of complex issues related to consumer protection and compliance.

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Consumer finance clients trust Cindy’s experience and skill to resolve their most challenging cases. Focused on class action defense, Cindy has handled numerous FCRA cases and is the point of contact for consumer protection defense.

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Dave is a partner of the firm who focuses on defending clients in consumer class actions and complex commercial litigation nationwide, particularly cases involving a variety of federal and state laws and regulations, including the Fair Credit Reporting Act (FCRA), the Telephone Consumer

Dave is a partner of the firm who focuses on defending clients in consumer class actions and complex commercial litigation nationwide, particularly cases involving a variety of federal and state laws and regulations, including the Fair Credit Reporting Act (FCRA), the Telephone Consumer Protection Act (TCPA) and associated FCC regulations, the Fair Debt Collection Practices Act, the Truth in Lending Act, the Electronic Fund Transfer Act, and many similar state consumer protection statutes.

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John is a first-chair litigator with a distinguished defense record in class action matters and other high-stakes litigation. He is sought after for his trial-to-verdict experience in state and federal courts throughout the U.S., effective strategies, and practical advice.

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Mary focuses her practice on litigation and strategy in lender liability, check and bank operation, class action, consumer finance, fiduciary matters, and creditor’s rights disputes. While Mary litigates extensively in the federal and state trial and appellate courts in Virginia, Maryland, and the…

Mary focuses her practice on litigation and strategy in lender liability, check and bank operation, class action, consumer finance, fiduciary matters, and creditor’s rights disputes. While Mary litigates extensively in the federal and state trial and appellate courts in Virginia, Maryland, and the District of Columbia, and the U.S. Court of Appeals for the Fourth Circuit, she represents banking clients in cases of all sizes nationwide.

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Michael heads the firm’s Consumer Financial Services practice, and handles class actions and high-stakes consumer litigation on a nationwide basis. He represents banks, mortgage servicers, debt buyers and collectors, and lenders against claims under consumer protection statutes, including the FCRA, TCPA, RESPA, RICO,

Michael heads the firm’s Consumer Financial Services practice, and handles class actions and high-stakes consumer litigation on a nationwide basis. He represents banks, mortgage servicers, debt buyers and collectors, and lenders against claims under consumer protection statutes, including the FCRA, TCPA, RESPA, RICO, and state UDAP laws. He has significant experience litigating and trying corporate governance disputes, including shareholder derivative claims, corporate dissolution cases, and corporate divorce matters. Michael also represents public utility companies in litigation and regulatory matters, including condemnation and land use cases.

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Ron leads the firm’s Privacy + Cyber team. Drawing from nearly 30 years of experience, he provides comprehensive services to companies in all aspects of privacy, security, data use, and risk mitigation. Clients rely on his in-depth understanding of technology and its application

Ron leads the firm’s Privacy + Cyber team. Drawing from nearly 30 years of experience, he provides comprehensive services to companies in all aspects of privacy, security, data use, and risk mitigation. Clients rely on his in-depth understanding of technology and its application to their business to solve their most important challenges — from implementation and strategy to litigation and incident response. Ron and his team have redefined the boundaries of typical law firm privacy and cyber services in offering a 360 degree approach to tackling information governance issues. Their holistic services include drafting and implementing bespoke privacy programs, program implementation, licensing, financing and M&A transactions, incident response, privacy and cyber litigation, regulatory investigations, and enforcement experience.

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Tim defends institutions nationwide facing class actions and individual lawsuits. He has particular experience litigating consumer class actions, including industry-leading expertise in cases arising under the Fair Credit Reporting Act and its state law counterparts, as well as litigation arising from data breaches.