With Senate on the Sidelines So Far, Financial Services Trade Groups Launch Challenge to CFPB Arbitration Rule

More than two months after its promulgation, the fate of the Consumer Financial Protection Bureau (CFPB) arbitration agreements rule remains uncertain. The Senate may ultimately join the House and invoke the Congressional Review Act (CRA) to nullify the CFPB rule. But several financial services trade groups are not waiting to find out and have commenced their own legal challenge to the rule. On Friday, September 29, 2017, over a dozen such groups—led by the Chamber of Commerce of the United States of America—filed suit against the CFPB, and its director Richard Cordray, in U.S. District Court for the Northern District of Texas. See Complaint for Declaratory and Injunctive Relief, Chamber of Commerce of the United States of America, et al. v. Consumer Financial Protection Bureau, et al., No. 3:17-cv-02670-D (N.D. Tex. Sept. 29, 2017).

The suit challenges the arbitration agreements rule in several ways. It contends that the rule is invalid because of the CFPB’s unconstitutional structure. The suit asserts that the rule runs afoul of the procedural requirements of the Administrative Procedures Act and is arbitrary and capricious in light of the record the CFPB developed during the rulemaking process. And the suit claims that the rule violates the Dodd-Frank Act—the law from which the CFPB derives its authority to promulgate the rule—because it does not actually benefit consumers. The suit also alleges that the rule contradicts data that the CFPB collected as part of its congressionally-mandated arbitration study and that study itself failed to consider the potential impact the rule would have on consumer arbitration. Based on these challenges, the suit seeks to vacate the CFPB rule on an expedited basis and to enjoin the CFPB from enforcing its terms.

Whether the suit proceeds will depend on a number of factors, not the least of which is whether the Senate elects to join the House of Representatives in passing a CRA resolution against the rule. As we previously reported, the House passed a CRA resolution in late July, just days after the CFPB promulgated the final arbitration agreements rule. If the Senate were also to follow that course, the President could then sign the repeal of the rule into law, likely mooting the trade-group suit. Although the Senate has yet to bring a CRA resolution to the floor for a vote, the CRA provides Congress with 60 days (excluding adjournments) from the time of publication of a rule to pass a joint resolution for repeal of the rule. Thus, the Senate has until early November to join the House CRA resolution and send the matter to the President’s desk. The Senate would only need a simple majority (when factoring in the Vice President’s potential tie-breaking vote) to do so. Thus, whether on Capitol Hill, or in federal court in Dallas, a challenge to the rule will likely move ahead in the coming weeks.