Burr & Forman

10.25.2017   |   Arbitration, Blog Articles, Consumer Finance Litigation

Late-Night Senate Vote Paves Way for President to Kill CFPB Arbitration Rule

After months of wrangling, the U.S. Senate voted to pass substantive and impactful legislation on Tuesday evening regarding the Consumer Financial Protection Bureau.  On July 10, 2017, the Bureau released one of its most controversial and impactful rules to date, prohibiting certain types of arbitration agreements in contracts between consumers and certain financial services companies.  Against strong industry disapproval and pushback, the Arbitration Rule reflected the Bureau’s focused determination to overhaul the use of consumer arbitration and to ban reliance on consumer arbitration clauses as a mechanism for restricting future class actions altogether.

The Rule would have prohibited certain providers of consumer financial products or services from relying on a pre-dispute arbitration agreement “entered into” on or after March 19, 2018 to block or otherwise restrict the filing or continued litigation of a consumer class action.  Additionally, the Rule would have required certain reporting requirements for companies that engage in arbitration, mandating that financial services companies submit to the Bureau certain records filed in arbitration or court proceedings in which a party relies on a pre-dispute arbitration agreement.  The requirements would have resulted in significant increase in consumer class actions, and meant a drastic departure from the current litigation and arbitration environment.

On July 20, 2017, Representative Keith Rothfus (R-PA) introduced legislation in the U.S. House of Representatives to nullify and void the Bureau’s Arbitration Rule using the Congressional Review Act.  The Joint Resolution, identified as H.J. Res. 111, says simply: “That Congress disapproves the rule submitted by the [Bureau] relating to ‘Arbitration Agreements’ . . . , and such rule shall have no force or effect.”  Five days after introduction, the House passed the legislation by a vote of 231-190.

For the past three months, both industry and consumer lobbyists have been contesting the bill behind the scenes and pressuring lawmakers, while other issues like healthcare reform, tax reform and legislative action on the DREAM Act have absorbed most of the press’ attention.  At certain points passage seemed unlikely, as a number of moderate Republicans seemed hesitant to sign on.  However, despite this uncertainty, the bill still passed by the narrowest of margins.  With fifty-two seats in the Senate, the Republicans lost two votes from Senators John Kennedy (R-LA) and Lindsey Graham (R-SC), leaving the Senate deadlocked in a 50-50 tie. That tie required Vice President Mike Pence to cast the deciding vote (his fifth tie-breaking vote of the 115th Congress), ensuring that the Bill passed 51-50.  The Bill now heads to the desk of President Trump, who is almost assured to sign the Bill into law shortly.

Passage of the Bill now ensures the status quo in consumer litigation and arbitration.  Opponents of the Bureau’s Arbitration Rule had long touted the benefits of consumer arbitration, including expediency of justice, reduced load on an already-stressed U.S. Court system and avoidance of expensive and inefficient class action lawsuits.  Now the U.S. Senate has echoed those concerns and, for the foreseeable future, arbitration will remain a favored means of resolving consumer litigation.

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