Consumer Finance Insights
August 21, 2017

Future of CFPB’s Arbitration Rule Rests in Hands of Senate

On July 25, 2017, the U.S. House of Representatives voted to block the Consumer Financial Protection Bureau’s (CFPB) Arbitration Rule from becoming effective with a vote of 231 to 190.  The vote was mostly down party lines and paves the way for the Senate to act to impose its own legislative veto to block the Rule.  As LenderLaw Watch previously reported (here and here), the CFPB’s Arbitration Rule prohibits financial institutions from including arbitration clauses precluding consumers from filing class action lawsuits in consumer financial services and products contracts.  While both the U.S. House of Representatives and U.S. Senate filed Congressional Review Act challenges to the Rule, the House was the first to act.  The Congressional Review Act permits Congress to effectuate a legislative veto of an agency rule, such as the Arbitration Rule, by issuing a resolution of disapproval with a simple majority vote.  5 U.S.C. § 802.  House Republicans filed their Congressional Review Act challenge to the Rule on July 20, 2017 and passed its resolution of disapproval of the Rule only five days later.  If not blocked, the Rule is slated to become effective on September 18, 2017.

Before the Rule can be blocked, the Senate and President must first have a say.  The Senate may vote on its resolution of disapproval as early as next month, once it resumes session on September 5, 2017.  As with the House, all the Senate must do to block the Rule is to render a simple majority vote disapproving of the Rule.

Although the Congressional Review Act permits the Senate to vote on a resolution for disapproval within 60 legislative days from the Rule’s publication date (July 19, 2017), it is conceivable that the Senate will act quickly in light of the House’s swift action.  5 U.S.C. § 802(a).  If the Senate votes to block the Rule, the Rule will then go to the President for signature or veto.  In light of President Trump’s stated disfavor of the Arbitration Rule and financial regulation more generally, it is unlikely he would veto it.  LenderLaw Watch will provide an update once the Senate votes on the Rule.

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