Vice President Mike Pence cast a tie-breaking vote in the U.S. Senate on the evening of October 24, 2017 to overturn the arbitration rules proposed in July by the Consumer Finance Protection Bureau. The House of Representatives had already voted in late July to repeal the arbitration rule under the Congressional Review Act. President Donald Trump has indicated that he will sign the resolution shortly, applauding Congress for “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.” Senator Elizabeth Warren, who had led opposition to the repeal resolution, called the move “a giant wet kiss to Wall Street.”
Congressional repeal of the arbitration rule provides a serious reprieve for financial institutions and other providers of consumer-facing financial products and services, who were otherwise bracing for a wave of class actions and racing to draft and roll-out compliant arbitration provisions for their financial products. This reprieve could last for a number of years for at least three reasons:
- The term of CFPB Director Richard Cordray, who has all-but absolute control over the Bureau, expires in July 2018, and it is unlikely that President Trump will appoint a director inclined to re-issue the rule.
- It may also be unlikely that Director Cordray would take another bite at the arbitration apple, especially if he enters the 2018 race for Governor of Ohio as widely expected.
- Another bite at the apple through normal rule-making may not be possible. The Congressional Review Act indefinitely prohibits the repealed arbitration rule from being “reissued in substantially the same form,” and requires any new rule that is “substantially the same” as the repealed rule to be “specifically authorized” by a “law enacted” by Congress, presumably through normal means.
This development does highlight some interesting aspects of the Congressional Review Act (“CRA”):
- This will be the fifteenth time the CRA has been used to repeal executive agency regulations in 2017.
- However, in the previous two decades between the enactment of the CRA in 1996 and the beginning of 2017, the CRA has only been used once to repeal pending regulations.
- The usual 60-vote supermajority needed to end debate in the Senate did not apply under the CRA, which, among other things, specifically limits debate in the Senate on a repeal resolution to 10 hours.
- President Trump’s signature does not actually appear to be necessary for repeal under the CRA, which only discusses the power of the President to veto or override a repeal.
- The CRA is not entirely clear on the requirements for enacting a measure that has been repealed. Its plain language suggests that the normal legislative process will apply to un-repealing a regulation, including normal Senate cloture rules and formal Presidential approval or veto.
- Further, the scope of a CRA repeal may be unclear. Do the CRA’s heightened procedural rulemaking requirements for repealed regulations apply indefinitely to all regulations that are substantially the same as any of the provisions of the arbitration rule? Or could certain provisions of the arbitration rule be repackaged and reintroduced through normal rule-making?
- Finally, when disputes over these issues arise, the method for resolving these disputes is unclear. The CRA itself has an unusual provision stating “no determination, finding, action, or omission” under the CRA “shall be subject to judicial review.” While circuit courts have split on the meaning of this provision, and its contours have not been fully explored over the CRA’s short and relatively dormant history, it seems likely that a private party can raise CRA non-compliance as a defense in an action to enforce a rule.
One final thing to note is that financial institutions and other providers of consumer financial products and services will still need to pay attention to state-level arbitration rules and requirements. Some state legislatures and courts have already enacted provisions that purportedly limit or affect arbitration. State politicians may be more inclined to take on this consumer issue as its profile grows at the state level in light of the federal rule’s repeal. The Supreme Court has consistently held that such state measures are pre-empted by the Federal Arbitration Act, most recently in May’s 7-1 opinion Kindred Nursing Centers, LP v. Clark, 581 U.S. ___ (2017). Nevertheless, a decision to ignore any state or local law based on presumed federal pre-emption should not be taken lightly.