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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.

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray’s announced yesterday (as covered here) that he will be resigning from his position by the end of this month.

The Administration appears poised to announce Office of Management and Budget Director Mick Mulvaney as an interim replacement until a permanent director can be selected by the President and approved by the Senate.

From a legal perspective, when it comes to determining the interim CFPB director, the succession issue is a simple one.

Some commentators have asserted that the Acting Deputy Director of the CFPB must succeed Cordray as Acting Director, until a permanent Director is confirmed; however, an analysis of the applicable statutes suggests the President does have the authority to select the Acting Director.

Statutory Framework for Interim Succession at the CFPB

There are two statutes under which an interim director potentially could be appointed.

The first is the Dodd-Frank Act, which created the CFPB, and which provides that the deputy director “shall…serve as acting Director in the absence or unavailability of the Director.” 12 U.S.C. § 5491(b)(5).

The second statute is the Federal Vacancies Reform Act of 1998 (“FVRA”), 5 U.S.C. § 3341 et seq., which applies when “an officer of an Executive agency…whose appointment to office is required to be made by the President, by and with the advice and consent of the Senate, dies, resigns, or is otherwise unable to perform the functions and duties of the office.” 5 U.S.C. § 3345(a).

Under the FVRA, an acting director may perform the duties of the vacated office for 210 days, without approval by the Senate. 5 U.S.C. §§ 3345-46. (The Supreme Court has recently ruled that the interim director cannot be the same person as the nominee for the permanent position. See Natl. Labor Relat. Bd. v. SW Gen., Inc., 137 S. Ct. 929 (March 21, 2017).)

By default, under the FVRA, the “first assistant” to the resigning officer performs the duties of the office on an acting basis. So, by default, the deputy director would step into Cordray’s shoes. But, the FVRA also provides that the president may bypass the “first assistant” and choose to appoint a senior employee or officer of the CFPB, or an officer at any agency who has already been approved by the Senate, as acting director. 5 U.S.C. § 3345(a)(2)-(3).

Some Analysts Have Suggested Dodd-Frank Requires that the Acting Deputy Director Replace Cordray

So far, there have been few analyses of how these statutes would apply to determining an interim replacement for Cordray. Some of those who have analyzed how these statutes interact have concluded that the Dodd-Frank provision likely controls. See articles here and here. These commentators make two primary arguments:

First, they rely on 5 U.S.C. § 3347(a)(1)(B), the “Exclusivity Provision” of the FVRA, which provides that the FVRA vacancy-filling methods are:

the exclusive means for temporarily authorizing an acting official to perform the functions and duties of any Executive agency…for which appointment is required to be made by the President, by and with the advice and consent of the Senate, unless…a statutory provision expressly…designates an officer or employee to perform the functions and duties of a specified office temporarily in an acting capacity…”

(Emphasis added.)

Those who assert Dodd-Frank controls for purposes of filling the vacancy at the CFPB, interpret this provision to mean that if another statute – like Dodd-Frank – designates an officer or employee to perform duties temporarily, then the FVRA’s otherwise applicable vacancy-filling provisions do not apply.

Second, those who argue that Dodd-Frank should control cite the basic principle of statutory interpretation that the specific statute controls over the general. Because Dodd-Frank specifically deals with vacancies in the Director position at the CFPB, so this argument goes, Dodd-Frank should control over the more general provisions of the FVRA dealing with vacancies in federal offices.

The President Likely Has the Authority to Appoint Cordray’s Interim Successor

There are three reasons that these arguments in favor of a Dodd-Frank-controlled appointment likely would be rejected in favor of the President’s authority to appoint the interim director under the FVRA. [1]

  1.  The Ninth Circuit and legislative history suggest the President may elect under which statute to proceed in making the appointment.

The first argument is based on Hooks ex rel. NLRB v. Kitsap Tenant Support Servs., 816 F.3d 550 (9th Cir. 2016), a case that involved the appointment by President Obama of a new General Counsel for the National Labor Relations Board (“NLRB”). The facts of the case are unimportant, but the court’s discussion of one of the arguments raised by the plaintiff is on point.

In Hooks, the plaintiff asserted that because the National Labor Relations Act (the “NLRA”) provided a means for temporarily filling vacancies in its top positions, in light of the Exclusivity Provision of the FVRA, the “NLRA provides the exclusive means for the President to appoint an Acting General Counsel.” 816 F.3d at 555.

The court rejected this argument, holding that when the Exclusivity Provision of the FVRA and another statute both provide means for filling a vacancy, the President may elect between the statutes to designate an acting agency head. The court reasoned that because both the NLRA and the FVRA provide means for filling a vacancy, “neither the FVRA nor the NLRA is the exclusive means of appointing an Acting General Counsel of the NLRB. Thus, the President is permitted to elect between these two statutory alternatives to designate an Acting General Counsel. ” Id. at 556 (first emphasis in original; second emphasis added).

The court went on to note that its reasoning was supported by the history of the FVRA:

The Senate Report on the FVRA confirms this interpretation. The Senate Report explains that the FVRA retains the vacancy-filling mechanisms in forty different statutes, including NLRA section 3(d), and states that “even with respect to the specific positions in which temporary officers may serve under the specific statutes this bill retains, the [FVRA] would continue to provide an alternative procedure for temporarily occupying the office.” S. Rep. 105-250, 1998 WL 404532, at *17 (1998) (emphasis added).

Id. The court’s holding applies with equal force to vacancy filling at the CFPB. Under Hooks, the President should have the authority to elect which of the two procedures – the procedure in Dodd-Frank or the procedure in the FVRA – to follow in appointing a temporary replacement for Cordray.

  1. Dodd-Frank may not apply to “permanent-until-appointed” vacancies.

The second argument in favor of the President’s appointment authority stems from comparing the language of Dodd-Frank, which provides for the deputy director to fill the role of acting director in case of “the absence or unavailability of the Director,” 12 U.S.C. § 5491(b)(5) (emphasis added), with the language of the FVRA, which applies when an officer “dies, resigns, or is otherwise unable to perform the functions and duties of the office,” 5 U.S.C. § 3345(a).

Because it is so new, courts have had little opportunity to interpret the succession provision in Dodd-Frank. But, in interpreting the FVRA, courts have differentiated between temporary absences that occur due to disability or sickness, and permanent vacancies in cases “when there has been a death or resignation, that is, when the vacancy will be permanent unless a successor is appointed.” United States v. Lucido, 373 F. Supp. 1142, 1149 (E.D. Mich. 1974).

Based on this distinction, supporters of a presidential interim appointment should be able to argue that the provision in Dodd-Frank that places the deputy director in the position of acting director in cases of “absence or unavailability of the Director,” only applies to temporary vacancies, as in the case of extended travel or sickness; while the FVRA provision that applies to an officer who “dies, resigns, or is otherwise unable to perform the functions and duties of the office” applies to vacancies that are permanent until appointment of a successor.

Lending credence to this interpretation is the fact that when Congress has adopted succession statutes in the past, it has seemed to specify when it intends an appointment to apply to all vacancies or to temporary vacancies only.

For example, 28 U.S.C. § 508, which deals with succession the position of U.S. Attorney General, provides: “In case of a vacancy in the office of Attorney General, or of his absence or disability, the Deputy Attorney General may exercise all the duties of that office….” (Emphasis added.) (Indeed, by its use of the disjunctive, “or,” that statute seems to implicitly recognize a distinction between a “vacancy” (i.e., a vacancy that is permanent-until-filled) and an “absence or disability” that might leave the office temporarily unfilled.)

Had Congress intended Dodd-Frank’s succession provision to apply to permanent-until-filled vacancies, it could have included similar language in that statute. The fact that it did not suggests that the FVRA, rather than Dodd-Frank, applies to a resignation like Director Cordray’s.

  1. Constitutional concerns favor the President’s appointment power.

The third argument in favor of the President’s appointment power under the FVRA is constitutional.

If the Dodd-Frank Act is read to dictate that the Acting Deputy Director automatically becomes the Acting Director, then this statutory method of succession may violate the Constitution.

As a panel of the D. C. Circuit noted: “[T]he Director enjoys significantly more unilateral power than any single member of any other independent agency…. Indeed, other than the President, the Director of the CFPB is the single most powerful official in the entire United States Government, at least when measured in terms of unilateral power.” PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1, 16 (D.C. Cir. 2016) (emphasis in original).

The panel went on to say: “The CFPB is exceptional in our constitutional structure and unprecedented in our constitutional history.” Id. at 21. The panel then ruled that the Dodd-Franks Act is unconstitutional insofar as it prevents the President from removing a Director without “cause.”

While that issue is now before the full D. C. Circuit, the panel’s rationale was sound as applied to the Director, and it applies with even greater force to an Acting Deputy Director, who was simply hired by Cordray.

The idea of an official having an absolute right to appoint his successor is difficult to square with principles of democratic government. Fundamental constitutional principles should not permit an individual to exercise the unilateral power available to the Director, immune from any oversight, when that individual was never elected by any voters, never appointed by any President and never confirmed by the Senate.

In short, despite commentary to the contrary, the President likely has solid legal ground to appoint the Acting Director of his choice – by all accounts (at least of as of the time of publication), OMB Director Mulvaney – to head the CFPB until a permanent replacement for Cordray can be found.

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[1] Another less nuanced argument has been advanced to support the President’s appointment power, which claims that the current deputy director at CFPB, David Silberman, is only Acting Deputy Director, rather than the Deputy Director, and therefore Dodd-Frank’s succession provision may not apply. That objection is quickly overcome, however, if Director Cordray simply removes “Acting” from Silberman’s title.

On November 15, as has been widely reported, the Director of the Consumer Financial Protection Bureau, Richard Cordray, announced by email to his staff that he would be resigning at the end of the month.  While he did not state the reason for his departure, it is believed that Cordray, a former Ohio attorney general, intends to run for governor of that state.

Cordray was a holdover from the Obama administration, appointed in July 2013 for a five-year term slated to end in July 2018.  Since its formation in 2011, the CFPB has been criticized for a structure that centralizes power in the hands of a single director – a radical departure from other independent federal agencies, such as the Federal Trade Commission, which is led by a bi-partisan panel of five Commissioners.  Furthermore, the CFPB is different from many other agencies in that the President can only fire the director “for cause,” engendering a lawsuit still working its way through the courts.  Since President Trump’s election, there have been rumors that Cordray may be fired, although questions about the President’s ability to do so may have prevented this action.

As of November 17, President Trump is expected to announce that Mick Mulvaney, the current Director of the Office of Management and Budget, will serve as CFPB Acting Director.  As for a permanent replacement for Cordray, there is a significant possibility that the President will chose someone from the ranks of Republican attorneys general, many of whom have taken issue with the highly-aggressive role developed at the CFPB under Cordray.

Richard Cordray, the Director of the Consumer Financial Protection Bureau (“CFPB”), announced today that he plans to step down from that post by the end of the month. Cordray’s term was otherwise set to expire in July of 2018.

Cordray, who was appointed by the Obama Administration after the CFPB was created in 2011, issued his announcement in an e-mail to CFPB staff. “Together, we have made a real and lasting difference that has improved people’s lives,” Cordray said in the e-mail. “I trust that new leadership will see that value also and work to preserve it – perhaps in different ways than before, but desiring, as I have done, to serve in ways that benefit and strengthen our economy and our country.”

Cordray’s resignation paves the way for the Trump Administration to install its own director, whose vision for the CFPB likely will differ significantly from Cordray’s.

Republican leaders cheered Cordray’s departure, with House Financial Services Chairman Jeb Hensarling, a Texas Republican, saying: “We are long overdue for new leadership at the CFPB, a rogue agency that has done more to hurt consumers than help them. The extreme overregulation it imposes on our economy leads to higher costs and less access to financial products and services, particularly for Americans with lower and middle incomes.”

Although Cordray’s e-mail did not provide a reason for his departure, pundits have speculated that Cordray’s resignation was triggered by a plan to run for governor of his home state of Ohio.

If Cordray’s departure results in a pull-back by the CFPB in its regulatory activities, this may prompt the acceleration of efforts by other regulators, including State Attorneys General (as reported here), to fill in the perceived regulatory gap.

We will continue to monitor the situation at the CFPB as it develops.

In recent years, many financial institutions and credit card companies have begun offering consumers free access to their credit score. On November 13, the Consumer Financial Protection Bureau published a request for information in the Federal Register regarding consumers’ experiences “with access to free credit scores and the experience of companies, and nonprofits, offering their customers and the general public free access to their credit scores.” The request poses fifteen questions for consideration and comment, addressing such issues as the sources of access to free credit reports, the benefit to consumers of having increased free regular access to credit scores, the benefits and costs to companies of such access, and consumers’ frequently asked questions.

The request is intended to “identify educational content that is providing the most value to consumers, and additional educational content that the Bureau or others could develop to increase consumers’ understanding of credit scores and credit reports.” In addition, the CFPB notes that the “request for information will also be used to gain a broader understanding of the industry practices that best support educating and empowering consumers.”

The comment period closes on February 12, 2018.

In an amicus brief filed last week in the U.S. District Court for the District of Kansas, Oklahoma Attorney General Mike Hunter assailed the expansive interpretation of enforcement powers against state and tribal sovereigns adopted by the Consumer Financial Protection Bureau. The case is CFPB v. Golden Valley Lending, Inc., et al., No. 2:17-cv-02521 (D. Kan.).

The case was initiated by the CFPB against four tribal entities (the “Tribal Defendants”), asserting four counts under the Consumer Financial Protection Act of 2010 and two under the Truth in Lending Act. The CFPB alleges that the Tribal Defendants did not disclose annual percentage rates in connection with their advertising or caller assistance and that they serviced and collected on loans that were void ab initio under the state laws applicable to some borrowers.

The CFPB alleged in the complaint that the four Tribal Defendants “are owned and incorporated by the Habematolel Pomo of Upper Lake Indian Tribe … , a federally recognized Indian tribe located in Upper Lake, California.” The Tribal Defendants moved to dismiss, arguing (among other things) that, as tribal entities, they are immune from the CFPB’s enforcement authority.

Hunter’s amicus brief focuses on the state’s concern that the CFPB could try to extend its jurisdiction over sovereign states just as it is trying with sovereign tribes. Oklahoma argues that the CFPB’s position “is without textual support, bad policy, and contrary to our system of federalism and the separation of powers. It is also against the express binding precedent of the U.S. Supreme Court and the Tenth Circuit, which decline to assume that generally applicable statutes apply to Indian tribes in the absence of clear statutory intent.”

The state points out that, if the CFPB’s expansive interpretation were to prevail, various financial services offered by Oklahoma – including “student loan programs, credit unions, and other endeavors” – could come within the CFPB’s enforcement authority. According to its amicus brief, “Oklahoma therefore has a very good reason to push back against the CFPB, as its actions threaten the State’s institutions and diminish its sovereignty, as well as that of others in our federal system.”

Briefing remains open on the Tribal Defendants’ motion to dismiss, with the CFPB’s response due December 11 and the Tribal Defendants’ reply due January 15. We will continue to monitor the case for further developments.

On November 2, Consumer Financial Protection Bureau Director Richard Cordray delivered remarks during the Consumer Advisory Board meeting in Tampa.  Cordray’s public pronouncements reflect and foreshadow the CFPB’s regulatory priorities, and his recent comments indicate the CFPB’s focus on reverse mortgages, consumers with limited English proficiency, and short-term loans.

Cordray mentioned the CFPB’s recently-released report about the costs and risks of using reverse mortgages as a strategy to delay collecting Social Security benefits and the increasing promotion of this strategy by those in the reverse mortgage industry, often without disclosing to consumers the costs and risks involved. The CFPB’s report discussed its analysis of these products using different scenarios and found that the cost of a reverse mortgage usually exceeds the benefits that would be gained by delaying Social Security retirement benefits from age 62 until full retirement age.

Cordray also discussed the CFPB’s efforts to increase home ownership for Spanish-speaking Americans, which has been identified as their top financial goal. The CFPB most recently is helping this population through its publication of Como prepararse para comprar una casa (“How to get ready to buy a home”), which may be found on the CFPB’s Spanish website at www.cfpb.gov/es.

Short-term loans have been of concern to the CAB and the CFPB for some time. Cordray pointed out the final rule issued in October addressing payday, vehicle title, and certain high-cost installment loans. Cordray continued his past references to such loans as “debt traps,” and he explained that the rule “rests on the basic principle of requiring lenders to make a reasonable assessment upfront of whether people can afford to repay these loans.” He also noted that the rule curtails repeated attempts by lenders to debit checking accounts, which results in additional fees, thus making it more difficult for consumers to get out of debt on both short-term and longer-term loans. Cordray explained that the rule was promulgated to assist borrowers who repeatedly roll over or refinance their loans, given that more than four out of five payday loans are re-borrowed within a month, usually soon after the loan is due. Cordray noted that the CFPB received about 1.4 million public comments on this proposed rule.

On October 4, the Consumer Financial Protection Bureau issued an interim final rule which will amend a portion of the 2016 Mortgage Servicing Final Rule for Regulation X of the Real Estate Settlement Procedures Act. Specifically, the interim rule will amend the amount of time mortgage servicers have under amended § 1024.39(d)(3)(iii) to “provide modified written early intervention notices to borrowers who have invoked their cease communication rights under the [Fair Debt Collection Practices Act].” See CFPB, Amendments to the 2016 Amendments to the 2013 Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), Oct. 2, 2017, at 5.

In 2016, the CFPB issued a final rule which amended multiple provisions of Regulation X of RESPA and Regulation Z of the Truth in Lending Act. § 1024.39(d) of Regulation X was amended to narrow the early written notice exemption for FDCPA-subject servicers to instances where there are no loss mitigation options available or if the borrower is in bankruptcy. See Early intervention requirements for certain borrowers, 81 Fed. Reg. 72,373 (Oct. 19, 2016) (to be codified at 12 C.F.R. § 1024.39(d)). For those FDCPA-subject servicers who are no longer exempt from the early notice requirement, the amendment requires these servicers to provide modified disclosures, and it also prohibits these servicers from providing the written notice more than once during a 180-day period. See 12 C.F.R. § 1024.39(d)(3)(i)-(iii). The 180-day prohibition was meant to protect repeatedly-delinquent borrowers who had invoked their cease communication rights under the FDCPA from receiving multiple unwanted communications from a servicer. See CFPB, Amendments to the 2013 Mortgage Servicing Rules Under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), Aug. 2, 2016, at 280. The 2016 Final Rule also modified § 1024.39(b) to require servicers to send further written notices to cover instances in which a borrower makes a payment on the loan but remains in a state of delinquency during the 180-day period after the first notice is sent. See 81 Fed. Reg. 72,373 (Oct. 19, 2016) (to be codified at 12 C.F.R. § 1024.39(b)(1)).

Following publication of the 2016 Final Rule, the CFPB received remarks from servicers regarding the 180-day prohibition on sending written notices. The servicers expressed concern that the 180-day prohibition of amended § 1024.39(d)(3)(iii) created an issue where an FDCPA-subject servicer would not have enough time to send a subsequent written notice within the time period prescribed in amended § 1024.39(b)(1). This incompatibility between the two provisions of § 1024.39 could create a situation in which a borrower makes a payment to a servicer during the 180-day period but because the servicer is prohibited from sending any subsequent notices to the borrower, it must wait until the expiration of the 180-day period to send another notice as required in amended § 1024.39(b)(1). Since § 1024.39(b)(1) requires the servicer to send a subsequent notice no later 180 days after the first notice is sent, the FDCPA-subject servicer would have to send the subsequent written notice on the 180th day after the first notice was sent, which could be on a weekend or holiday. In admitting that this type of situation was an unforeseen consequence of the 2016 Final Rule, the interim rule will provide for a ten-day safe harbor period at the end of the 180-day period for FDCPA-subject servicers to send out subsequent written notices per amended § 1024.39(b)(1).

The interim final rule took effect on October 19. The CFPB will forego the usual 30-day window between publication and adoption of proposed rules but it is still requesting public comments.

We are pleased to announce that Troutman Sanders partner Ashley Taylor will moderate a webinar panel discussion hosted by the American Bar Association on “Defending Consumer Protection Actions on Multiple Fronts: Coordinating Joint CFPB and State AG Investigations and Settlements.” The event will take place on November 27, 2017 from 1:00 – 2:30 p.m. ET.

A panel composed of state Attorney General (AG) consumer protection prosecutors and defense bar experts will offer insights and debate best practices for practitioners whose clients are seeking to resolve consumer law-based liability with both the Consumer Financial Protection Bureau (CFPB) and one or more state AG offices simultaneously.

Topics will include:

  • Inter-governmental and inter-agency information sharing, confidentiality treatment, and public record laws (what investigatory targets should expect)
  • Concurrent jurisdiction of CFPB Act and state UDAP statutes
  • State and federal CID and subpoena authority
  • The mechanics of a joint settlement — federal and state practices and settling instruments
  • Post-settlement performance and compliance issues at the state and federal levels

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.