House approves FY 2017 appropriations bill containing curbs on CFPB authority

by Ballard Spahr LLP
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By a vote of 239-185, the House of Representatives has approved a fiscal year 2017 appropriations bill that contains various provisions intended to curb the CFPB’s authority.  Those provisions would fund the CFPB through the annual congressional appropriations process rather than through transfers from the Federal Reserve as currently provided by Dodd-Frank and change the CFPB’s leadership structure from a single Director to a five-member Board of Directors appointed by the President.

The bill also includes a provision that states none of the CFPB’s funding “may be used to regulate pre-dispute arbitration agreements…and any regulation finalized by the Bureau to regulate pre-dispute arbitration agreements shall have no legal force or effect until the requirements regarding pre-dispute arbitration specified in the report accompanying [the bill] under the heading “Bureau of Consumer Financial Protection” are fulfilled.”  On May 5, 2016, the CFPB issued a proposed rule that would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

The “requirements regarding pre-dispute arbitration specified in the report accompanying [the bill]” include requirements related to  a further study that must be conducted by the CFPB.  The report lists various topics the CFPB must address in the study and mandates use of a research process “that includes peer review of the CFPB’s methodology and findings by a diverse group of individuals with relevant expertise in quantitative and qualitative research methods from the private and public sectors” but whose “expertise in research methods is unrelated to dispute resolution.”  The composition of the peer review panel is subject to rulemaking procedures, including notice and comment.  The CFPB must publish its tentative conclusions together with sufficient supporting and explanatory information, and solicit public comment.  In its report to Congress, the CFPB must explain its reason for disagreeing with significant comments. Concurrently with submitting its report to Congress, the CFPB must make a description of the peer review process publicly available.

The report also requires the CFPB to consider the costs and benefits to consumers in determining whether any final rule regulating pre-dispute arbitration rule is in the public interest and for the protection of consumers.  Such costs and benefits must include: (1) the practical effect on consumers’ access to low cost, fair, and efficient means of resolving claims for the types of injuries that consumers most often incur and that are less likely to be the subject of government enforcement actions; (2) the extent to which private class action proceedings on behalf of consumers regarding consumer financial products and services provide net benefits to consumers in light of the CFPB’s and other regulators’ enforcement and examination authority; (3) the practical effect of any regulation on the availability of pre-dispute arbitration; and (4) the impact of any regulation on the cost and availability of credit to consumers and small business.  The CFPB must find that the demonstrable benefits of any rule to consumers outweigh the costs to consumers, taking into account the foregoing factors and other relevant factors, and that the rule subjects pre-dispute arbitration to no more regulation than is necessary to serve the public interest and protect consumers.  The CFPB’s findings, together with its analysis and underlying data, must be published in the Federal Register.

The House Appropriations Committee had adopted an amendment to the appropriations bill that would block the CFPB from finalizing or enforcing a rule regulating payday lending until the CFPB submits a detailed report on the consumer impact to Congress and identifies existing credit products available to replace the current sources of short-term, small dollar credit.  However, because that amendment is not included in the version of the bill that is linked to the committee’s press release announcing the House’s approval of the bill, the status of the amendment is unclear.

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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