As anticipated, the Consumer Financial Protection Bureau has officially removed from publication a rule that would have prohibited arbitration agreements in certain consumer contracts.  The CFPB published its removal of 12 CFR part 1040, titled “Arbitration Agreements,” from the Code of Federal Regulations.  The CFPB’s removal of part 1040 reflects Congressional disapproval of the underlying Arbitration Agreements rule of July 19, 2017.

The CFPB had promulgated the Arbitration Agreements rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorized the CFPB to “prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties.”

According to the CFPB, the Arbitration Agreements rule would have:

  • “prohibited providers from using a pre-dispute arbitration agreement to block consumer class actions in court” and “required providers to include a provision reflecting this limitation in arbitration agreements they entered into;” and
  • “required providers to redact and submit to the Bureau certain records relating to arbitral proceedings and relating to the use of pre-dispute arbitration agreements in court” and “required the Bureau to publish these records on its Web site.”

The rule went into effect on September 18, 2017.  Under the Congressional Review Act, however, a rule promulgated by an administrative agency “shall not take effect (or continue), if the Congress enacts a joint resolution of disapproval.”  Had Congress not disapproved the rule, it would have applied to agreements entered into after March 19, 2018.

The day after the CFPB promulgated the Arbitration Agreements rule, Congressman Keith J. Rothfus (R-Pa.) introduced H.J. Res. 111, a joint resolution of disapproval.  The measure prevailed in the House of Representatives by a vote of 231-190, and in the Senate by a vote of 51-50.  President Trump signed into law H.J. Res. 111 on November 1, thereby discontinuing the Arbitration Agreements rule.  With the underlying rule discontinued, part 1040 no longer has any force or effect.

Although the Arbitration Agreements rule and part 1040 were ostensibly intended to protect consumers, opponents of the rule cited a critical report by the Treasury Department that noted that the rule “would upend a century of federal policy favoring freedom of contract to provide for low-cost dispute resolution.”  Critics of the rule also maintained that it would harm community banks, credit unions, and other financial institutions, as well as consumers who might prefer to have their disputes arbitrated.