Arbitration, CFPB, Class Action Waivers, Class Actions, Class Arbitration, Consumer Finance Litigation, Legislative Updates, U.S. House, U.S. Senate, White House

Reversal of Fortune: Congress Strikes Down CFPB Arbitration Rule Banning Class Action Waivers

U.S. businesses have the good fortune to be on the receiving end of a favorable U.S. Senate vote nullifying the hotly-contested Consumer Financial Protection Bureau (CFPB) rule banning class action waivers in certain consumer finance arbitration agreements. The rule, issued by the agency in July 2017, took several years to finalize and was criticized for being based on a flawed data, the result of the agency overreaching, and more beneficial to class action plaintiffs’ attorneys than the consumers it was supposed to protect. Our previous posts discuss in detail the rule’s requirements and the friction that the rule encountered. The final rule was announced on July 10, 2017 and published in the Federal Register on July 19, 2017. Accordingly, it was set to take effect on September 18, 2017 (60 days following publication) and to apply to contracts entered into on or after March 19, 2018 (180 days after the effective date). Yet, the rule was met with swift opposition by the U.S. Congress the day after it was published.

On July 20, 2017, the U.S. House Financial Services and Senate Banking Committees issued joint resolutions under the Congressional Review Act (H.J. Res. 111 and S.J. Res. 47) seeking to nullify the CFPB rule. Just days later, the House approved its resolution, sending it to the Senate for consideration. On October 24, 2017, a 51-50 Senate vote – via a tie-breaking Vice Presidential vote – approved the resolution to strike down the CFPB rule.  The Congressional resolution has been presented to the President for consideration, who publicly “applaud[ed]” Congress for striking down the rule. The White House statement regarding the Senate vote noted:

President Donald J. Trump applauds the Congress for passing H.J. Res. 111, Disapproving of the Consumer Financial Protection Bureau’s (CFPB) Arbitration Agreements Rule. According to a recent report by the Department of the Treasury, the evidence is clear that the CFPB’s rule would neither protect consumers nor serve the public interest. Rather, under the rule, consumers would have fewer options for quickly and efficiently resolving financial disputes. Further, the rule would harm our community banks and credit unions by opening the door to frivolous lawsuits by special interest trial lawyers. By repealing this rule, Congress is standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy.

CFPB Director Cordray has written to President Trump, asking that he veto the Congressional resolution.

The CFPB rule was considered a blow to companies, who have benefited in recent years from the U.S. Supreme Court largely validating the use of class action waivers in arbitration agreements. Congressional reversal of the CFPB rule may put a win in their column, but companies should continue to stay current on developments in this area. Individuals continue to press the boundaries, seeking to circumscribe the use of class waivers in various contexts. The employment agreement is the next front facing consideration by the U.S. Supreme Court, as arguments were recently heard in Epic Systems Corp. v. Lewis (No. 16-285), which raises the question of whether class waivers in employment agreements violate the National Labor Relations Act. We will keep you posted.

Tony Lathrop

About Tony Lathrop

Tony Lathrop brings experience and a high level of analytical ability, professional credibility and creativity to handling litigation matters. He rigorously represents his clients' interests in a diverse range of claims and actions. A certified mediator, Mr. Lathrop has extensive experience representing business clients in mediation. His service to the legal profession in North Carolina has allowed him to develop relationships across the state that benefit the firm's clients.

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