CFPB Arbitration Rule Eliminated by Congress and President

Bilzin Sumberg
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On November 1, President Trump formally did away with a Consumer Financial Protection Bureau (CFPB) arbitration rule that would have given consumers the opportunity to file class actions against banks and other companies in the financial services industry.

The CFPB rule was released in July 2017. It sought to prohibit and eliminate bans against class actions that had become a staple of arbitration clauses in consumer financial agreements.

The president signed a resolution, passed by both houses of Congress under the Congressional Review Act (CRA), that nullified the CFPB rule. The House of Representatives had moved quickly in July in response to the CFPB rule, voting to overturn it. The Senate followed suit in October, passing by the narrowest of margins (51-50, with Vice President Pence casting the deciding vote to break the deadlock) its version of CRA resolution disapproving the rule.

The president’s signature of Congress’ resolution left consumer advocates vowing to continue their fight to end forced arbitration clauses in financial services agreements, employment contracts and other contracts. CFPB Director Richard Cordray had sent a letter to the president last week asking him to preserve the CFPB rule. Cordray argued that Trump was being misled by advisers who claimed that arbitration was a speedier, more efficient option for consumers than class action litigation.

Following the official action eliminating the rule, Cordray said in a statement that the president had,

signed away consumers’ rights to their day in court. . .[t]his action tips the scales of justice in favor of Wall Street banks less than ten years after they caused the financial crisis.

He emphasized that the CFPB would stay aggressive in carrying out its responsibilities with respect to monitoring consumer financial markets and products.

Multiple U.S. Supreme Court decisions this decade have affirmed businesses’ right to enforce class action waivers in consumer arbitration agreements under the Federal Arbitration Act. What remains unresolved by the Supreme Court is a narrower issue that was the subject of oral argument on October 2, 2017 in three consolidated cases that the Court will be deciding. That narrower issue is whether class action waivers are permissible in employment contract-related arbitration provisions. Consumer watchdog groups, employees, and plaintiffs’ counsel often express great frustration and concern about class action waivers, on the theory that most of their prospective monetary claims against a company are likely to be for amounts that are significant to them personally, but probably not large enough to justify the expenses and fees associated with arbitration. The opportunity to band together with other similarly-situated claimants is thus attractive to them. Whether employees will be able to circumvent existing class action waivers in employment contracts, or prevent them from appearing in their contracts in the first place, bears watching as the Supreme Court mulls its decision in the pending consolidated cases. Those cases will be decided no later than June 2018.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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