I have previously expressed serious doubt whether Director Cordray will issue a final arbitration rule. In the CFPB’s last semi-annual regulatory agenda issued last year, the CFPB stated that the arbitration rule would be issued in February of this year. It is almost July and the CFPB has still not issued the rule. All they have stated publicly, most recently in May at the Chicago version of the PLI Annual Institute on Consumer Financial Services which I co-chair, is that the staff is still wading through comment letters and that the rule was not ready to be issued.

As I have stated previously, I think that the real reason for the delay is a result of Director Cordray’s concern that if he issued a final rule, Congress would nullify it under the Congressional Review Act (the “CRA”). Under the CRA,  through a joint resolution passed by a simple majority in the House and Senate and signed by the President, Congress may override any final rule within 60 legislative days after it receives notice of the rule. Already, at least 14 rules issued by agencies other than the CFPB have been nullified. However, Congress didn’t nullify the CFPB’s prepaid accounts rule. If a rule is nullified, then the agency is precluded from ever issuing a similar rule in the future.

I felt that the fear of a CRA override would be enough to deter Director Cordray from ever issuing a final arbitration rule. It appears that I may be wrong.

I’m now hearing a rumor from a reliable source that Director Cordray is willing to roll the dice and will issue a final arbitration rule by the end of July. If he does so, the rule will become effective on the 211th day after the rule is published in the Federal Register, well within Director Cordray ‘s remaining term which expires on July 21,2018. However, I heard from the same source who told me that the rule will be finalized by the end of July that Director Cordray will resign in the 4th quarter of this year to return to Ohio to run for governor.

So where does this leave us? If Cordray issues the rule by the end of July, there will certainly be an effort to override it under the CRA. It should succeed as long as the Republican Senators vote as a bloc to override it. With a 52-48 voting margin in the Senate, the Republicans can only afford to lose 2 votes and still pass the override resolution.

It is also likely that there will be a lawsuit filed challenging the legality of the rule. While I think there are very strong arguments in support of a court invalidating the rule, the outcome of litigation is always uncertain.

There is yet a potential third way for the arbitration rule to not become effective. If Director Cordray resigns to run for Governor of Ohio in the 4th quarter and President Trump appoints a successor (either a permanent one or a temporary one), and the rule is not yet effective, the successor could delay the effective date and then take steps to repeal the rule before it ever becomes effective. Of course, any such repeal would need to comply with the Administrative Procedures Act.

As you can see, there are lots of “moving parts” here and it is very uncertain how this will all play out.