As LenderLaw Watch previously reported, on July 10, 2017 the Consumer Financial Protection Bureau (CFPB) released its Arbitration Rule, which blocks the use of mandatory arbitration clauses in consumer financial products and services contracts that prohibit class action lawsuits. On July 19, 2017, the CFPB published this Rule in the Federal Register, thereby starting the clock for its effectiveness. The Rule becomes effective on September 18, 2017, and applies to contracts entered into 180 thereafter—March 19, 2018. (Technically, 180 days after September 18, 2017 is Saturday, March 17, 2018, but the effective date will likely be pushed to Monday, March 19, 2018 based on a similar implemented effective date calculated by the CFPB.)
As LenderLaw Watch predicted, the Rule has been met with staunch opposition by various individuals and groups seeking to prevent the Rule from becoming effective. A challenge has now been brought in an effort to overturn the Rule. On July 20, 2017, U.S. Senate Banking Committee Chairman Mike Crapo (R-ID) along with 23 other Republican Senators filed a Congressional Review Act Joint Resolution of Disapproval in the Senate. On the same day, the U.S. House of Financial Services Committee issued a press release, informing the public that the Committee’s Republican congressmen had unanimously filed a similar joint resolution of disapproval, H.J. Res. 111.
Under the Congressional Review Act, Congress can submit a joint resolution to disapprove of an agency rule, such as the CFPB’s Arbitration Rule. 5 U.S.C. § 802. The joint resolution is then “referred to the committees in each House of Congress with jurisdiction.” Id. at § 802(b)(1). The committee to which the joint resolution is submitted will either report on the resolution or be discharged from further consideration of the resolution. Id. at § 802(c)-(d). If the resolution is heard by a Senate committee, which appears will be the case here, then the Senate will debate the resolution. Id. at § 802(d)(2). Such debate is limited to 10 hours and must “be divided equally between those favoring and those opposing the joint resolution.” Id. At the conclusion of the debate, a vote is taken as to whether the rule should be overturned. Id. at § 802(d)(3).
Republican support for the joint resolution has so far been unwavering. Banking Committee Chairman Crapo stated, “The rule is based on a flawed study that leading scholars have criticized as biased and inadequate, noting that it could leave consumers worse off by removing access to an important dispute resolution tool. By ignoring requests from Congress to reexamine the rule and develop alternatives between the status quo and effectively eliminating arbitration, the CFPB has once again proved a lack of accountability.” Senator Tom Cotton (R-AR)—one of the first Senators to openly criticize the Rule after the CFPB’s announcement—argued that the Rule “stifl[es] economic growth with needless, endless litigation.”
Given the deep divisions between Republicans and Democrats concerning the Arbitration Rule, the Congressional debate will surely be contentious. LenderLaw Watch will continue to provide updates on challenges to the Rule.