Trump Blocks CFPB Arbitration Rule, but the Story’s Not Over Yet

by Polsinelli
Contact

Polsinelli

President Donald Trump effectively stopped the Consumer Financial Protection Bureau’s (CFPB) so-called “arbitration rule,” signing legislation repealing the rule on Nov. 1. The rule would have prohibited providers of certain consumer financial products and services from requiring arbitration of any future dispute to bar a consumer from filing or participating in a class-action lawsuit.

The House of Representatives used the Congressional Review Act to initiate repeal of the rule in July, which would have gone into effect on Sept. 18. The Senate joined in with the House when it voted in favor of the repeal on Oct. 24 (the tie vote broken by Vice President Pence). However, repeal of the arbitration rule may not provide finality on the matter of class-action waivers and arbitration clauses in the financial services industry. Indeed, large and influential states such as California have started their own push for a greater role in the regulation of consumer financial services and other regulators may use their more limited, but still significant authority to implement reform via enforcement actions. Thus, providers of consumer financial services will have to remain vigilant of developments in this area to avoid having their consumer contracts invalidated or challenged via enforcement actions.

Congress created the CFPB in the Dodd-Frank Wall Street Reform and Consumer Protection Act in July 2010. Since its inception, the CFPB has been controversial and litigation challenging its constitutionality remains pending in the federal courts. Among the most widely publicized – and controversial – actions of the CFPB was the promulgation of the arbitration rule. Rumors about the rule had swirled for years, but the CFPB didn’t propose it until May 2016, after conducting a study on the effects of arbitration on the consumer financial industry and delivering a report to Congress in 2015. The rule became final in July 2017, but would not have gone into effect until 60 days later.

The arbitration rule did not ban pre-dispute arbitration clauses outright, but merely pre-dispute arbitration clauses that prohibited a consumer from filing or participating in a class-action lawsuit. While the rule put forth by the CFPB was less restrictive than some were expecting, it still faced considerable industry and legislative opposition. Consumer advocates asserted the rule was necessary to permit consumers access to the justice system, but lawmakers and industry advocates asserted the rule would result in increased costs for consumer financial service providers, which would ultimately be passed on to consumers. Given the timing of the arbitration rule and Trump’s election, opponents in Congress were able to use the Congressional Review Act to legislatively repeal the administrative action of the CFPB.

Repeal of the arbitration rule essentially affirmed what the U.S. Supreme Court has been saying in recent decisions on the topic, (i.e., that pre-dispute arbitration contracts, which prohibit class-action litigation, are enforceable). And on the surface, the issue appears settled as a matter of federal law, but financial services firms should not consider the issue closed. For example, California recently enacted Senate Bill 33, which prohibits banks, credit unions, and investment advisors from requiring arbitration if those banks, etc. are alleged to have created fraudulent accounts. The legislation is likely to face judicial challenges from the financial services industry. Senate Bill 33 is narrower than the CFPB’s arbitration rule in that the California legislation applies only to claims arising out of fraudulent or illegal activities, but the bill provides a perfect example of the ways in which populous states may take up the consumer protection mantle.

Thus, notwithstanding the apparent end of the CFPB arbitration rule, providers of consumer financial services must stay aware of the constantly evolving state regulatory climate. Failure to adhere to state laws and regulations in the field of pre-dispute arbitration agreements may lead to the invalidation of contractual clauses and the prospect of class litigation regardless of the existence of a pre-dispute class-action waiver or arbitration clause.

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.

© Polsinelli | Attorney Advertising

Written by:

Polsinelli
Contact
more
less

Polsinelli on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.