CFPB Promulgates, House Seeks to Repeal, Final Arbitration Agreements Rule
Recently, the Consumer Financial Protection Bureau (CFPB) promulgated its final arbitration agreement rule. The rule comes more than 11,000 comments, 13 months, and one change in presidential administration after the CFPB issued its proposed rule in May 2016. Yet despite its long history, Congress began taking steps to repeal the rule almost immediately.
As heralded by the proposed rule, the final rule curbs the use of class action waiver provisions in arbitration agreements that are part of financial services or products contracts. Under the rule, arbitration agreements containing class action waiver provisions are unenforceable if entered into after a certain period of time following the rule’s effective date. The rule also requires the use of disclaimers in financial services or products arbitration agreements—including that consumers are not waiving their ability to lead or join in class proceedings. And the rule mandates that covered providers of financial services and products submit reports to the CFPB regarding arbitration proceedings with consumers. Most of the revisions to the final rule appear intended to clarify the rule’s language—including instances when the rule does not apply. To that end, the rule provides for an optional disclosure that the ban on class waivers “does not apply to persons that are excluded from the Consumer Financial Protection Bureau’s Arbitration Agreements Rule.”
The rule was published in the Federal Register on July 19, 2017, and becomes effective on September 18, 2017. See 82 Fed. Reg. 33,210. Yet, congressional efforts to counteract the rule are already underway. The House of Representatives voted 231-190 to invoke the Congressional Review Act (CRA) against the rule. The CRA allows Congress to repeal an administrative agency’s rulemaking within 60 days of its promulgation. 5 U.S.C. § 802. If repealed, the agency is precluded from promulgating a similar rule unless expressly authorized by Congress to do so. 5 U.S.C. § 801(b). The Senate will now take up the measure, and it requires only a simple majority to pass.
Other challenges to the rule may be forthcoming. The Trump administration has begun the process of unwinding several Obama administration efforts to curb the use of class waiver provisions in arbitration agreements, including submitting a brief to the United States Supreme Court challenging the National Labor Relations Board decision that prohibited such provisions in employment contracts and a brief to the United States Court of Appeals for the Fifth Circuit abandoning the portion of the Department of Labor fiduciary rule that prohibited retirement account advisers from including class waivers in their contracts if they seek commissions from their clients. Certain interest groups may also challenge the rule under the Administrative Procedures Act or on grounds of unconstitutionality. How these challenges play out, and whether the CFPB final arbitration agreement rule survives them, remains to be seen.