Transition Tracker | Arbitration Rule Update

WHAT HAPPENED

In May 2016, the CFPB proposed a rule limiting the use of pre-dispute arbitration agreements. Comments were due in August of this year. The CFPB’s fall 2016 rulemaking agenda lists the final rule as being released in February of 2017.

WHAT IT MEANS FOR AFSA MEMBERS

The question on everyone’s mind is – will the CFPB finalize the rule before the January inauguration? Although the CFPB’s rulemaking agenda lists the final rule as being released in February, there are rumors flying around town that the CFPB is rushing to finish the rule before January 20. Although that is certainly possible – as the CFPB could finalize the rule with limited changes – AFSA believes that this is somewhat unlikely.

Even if the CFPB did finalize the rule before the inauguration, Congress could use the Congressional Review Act (CRA) to repeal the rule. Given that 36 senators and 104 representatives signed a letter in August asking that the CFPB reconsider the proposed rule, and a simple majority vote in both houses is enough for a repeal under the CRA, it is likely Congress would repeal the rule and the new president would sign off on it. An important note about the CRA: if a joint resolution of disapproval were enacted, the CRA provides that a rule may not be issued in “substantially the same form” as the disapproved rule unless it is specifically authorized by a subsequent law.

Because it would be relatively easy to repeal the rule, and a repeal would prevent the CFPB from reissuing the rule, we believe that it is less likely the CFPB will rush to finalize the rule. Also, in a blog post on December 2, the CFPB did not mention the February date, but only said that it was “in the process of reviewing comments.”

WHAT IS AFSA DOING

The Dodd-Frank Act authorizes the CFPB to “prohibit or impose conditions or limitations on the use of a pre-dispute arbitration agreement between covered persons [companies] and consumers, only if the CFPB finds that doing so is in the public interest and for the protection of consumers.” AFSA has emphasized, and continues to emphasize, that it has not been determined that the proposed rule is in the public interest, or that it will protect consumers. In fact, there is abundant information that arbitration serves these goals better and more effectively than other options, such as class actions.

AFSA has asked the Trump transition team to review the proposed rule and delay finalizing any rule that would prohibit the use of class action waivers. AFSA told the transition team that arbitration, which is governed by the Federal Arbitration Act and has been approved by the U.S. Supreme Court, is a fair and effective mode of settling agreements between borrowers and creditors. The CFPB’s own study shows that arbitration is inexpensive, fast, and beneficial to consumers. The study also shows that class actions only benefit the plaintiffs’ attorneys.

AFSA has also reached out to members of Congress to alert them to the range of possibilities for this rule and to seek their support in delaying the rule.