Late Tuesday evening the Senate voted to nullify the Consumer Financial Protection Bureau’s (“CFPB” or “Bureau”) controversial Arbitration Agreements Rule (“Rule”). All but two Senate Republicans supported a resolution to repeal the Rule pursuant to the Congressional Review Act. While there were rumors that one or two Democrats might also lend their support, none ultimately did so. The Vice President cast the tie breaking vote.
The House of Representatives voted to nullify the Rule in July days after the CFPB released the final Rule. The late night vote in the Senate garnered just enough support—a simple majority—to send the resolution to President Trump’s desk. The President already indicated his support of the resolution. Following a string of defeats on healthcare, and lukewarm support on tax policy, this action in Congress marks the first significant legislative win for the Trump administration.
As we noted recently, opposition to the Rule has been strong and several industry groups recently filed a federal lawsuit. The Rule became effective September 18, 2017 and would have impacted agreements entered into after March 19, 2018. In light of the fast-approaching deadline, many companies have struggled to determine how much effort to invest in preparing to come into compliance. The nullification of this Rule will be a welcome relief.
The vote represents a full rebuke of the CFPB’s efforts concerning arbitration. The Rule followed years of information-gathering and analysis by the Bureau. CFPB staff at all levels, including Director Cordray, staunchly defended the Rule, its legal and factual underpinnings, and its potential to protect consumers. Nullification of this Rule is a massive blow to an agency that has suffered a number of recent losses in federal court. The CFPB will now be barred from promulgating another Rule concerning class action waivers in arbitration clauses.
Industry will likely be buoyed by this vote. As the CFPB increasingly comes under fire from the Trump administration, Congress, and through litigation defeats, more companies may be willing to openly challenge the Bureau—something that was virtually unheard of just a year ago. With the head of Enforcement recently announcing his departure and rumors of Director Cordray leaving to run for governor in Ohio, the future of the CFPB seems much more tenuous following this vote.
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Maria Earley is a partner in Reed Smith’s Financial Industry Group in Washington, D.C. and a former enforcement attorney with the CFPB. Ashley Shively is counsel in the Financial Industry Group in San Francisco. Maria, Ashley, and several other Reed Smith attorneys have significant experience handling supervisory, enforcement, and litigation matters involving the CFPB. If you have questions about this Rule, the CFPB, or consumer litigation, please do not hesitate to contact a member of the Reed Smith team.