On October 24, 2017, the U.S. Senate passed a resolution disapproving the Arbitration Agreements Final Rule (“Rule”) enacted earlier this year by the Consumer Financial Protection Bureau (“CFPB”). The Rule sought to prohibit financial services providers from using pre-dispute arbitration agreements to block consumer class actions in federal and state courts. We previously reported on the content of the Rule in a prior Client Service Alert.
The Senate passed the disapproval by a by a razor-thin margin of 51-50, with Vice President Mike Pence casting the tiebreaking vote. The House of Representatives previously passed the disapproval resolution in July, as we reported in a prior KT Class Action Blog Post. Further, President Trump has stated that he will not veto the disapproval. Accordingly, under the Congressional Review Act, the Rule will not take effect, and the CFPB cannot reissue the Rule in “substantially the same form.” 5 U.S.C. § 801(a)(3), (b).
Key Takeaways: For now, pre-dispute arbitration clauses with class action waivers are safe. The close, party-line votes on the disapproval resolutions and the heated rhetoric on both sides of the debate indicate, however, that the larger debate may not be over. Much will depend on future elections, as Congress of course remains free to pass future laws overriding the disapproval regulation — laws that a future president (especially a Democratic president) might entertain.
In the meantime, companies should be able to count on most courts continuing to enforce arbitration clauses containing class-action waivers. Although the absence of an opportunity to certify a class will obviate many financial services claims, some consumers will elect to press their claims in individual arbitrations. These arbitrations present different challenges and opportunities for a cost-efficient and effective defense, including making an early determination of a defendant’s true exposure on the individual consumer’s claims and appreciating the virtually unreviewable status of an arbitration award. Where winning the motion to compel individual arbitration does not end the consumer financial services claim war, corporate defendants should retain counsel with experience in individual consumer financial services arbitrations to navigate the unique challenges presented by these smaller-dollar disputes. The authors of this article have handled such matters in the past and can advise on best practices.
