Congress, OCC and Consumer Financial Protection Bureau at Odds Over New Arbitration Rule

Client Alert
Topic: Consumer & Commercial Litigation
By: Jennifer Monty Rieker and Frances Floriano Goins

Jennifer Monty Rieker

Frances Floriano Goins

On Monday, the acting head of the Office of the Comptroller of the Currency, Keith Noreika, requested that the Consumer Financial Protection Bureau (CFPB) delay publishing its final Arbitration Rule. Noreika requested the delay to review whether the new rule and the threat of increased class actions will present a risk to banks. As part of his request, Noreika asked the CFPB share with the OCC the data the CFPB collected and relied on in drafting the Arbitration Rule.

This request comes a week after the CFPB announced its rule that bars banks, credit card companies, and financial institutions from including arbitration clauses in new consumer contracts that require all disputes to be arbitrated.

Often used as a mechanism to prevent expensive litigation, avoid lengthy trials, and prohibit class actions, arbitration clauses are primarily included as cost-saving tools. However, after the CFPB’s study of the use of arbitration agreements, the CFPB found that the majority of consumers did not know or understand that when they

signed arbitration agreements.

The new rule did not come as a shock to those following the CFPB. Despite belief that President Trump and a Republican-controlled Congress would weaken the agency, the CFPB continues to promulgate new rules and file enforcement actions.

The new rule, touted as a benefit to consumers, has several issues. While new contracts will bar the use of mandatory arbitration clauses, the rule is not effective until 60 days after publication in the Federal Register and will apply to contracts entered into 180 days after that.

The rule also requires companies to report to the CFPB claims and counterclaims, their answers, and awards issued in arbitration. After review, the CFPB would publish redacted versions of that information in July 2019.

Congress is already in the process of voiding the Arbitration Rule’s provisions. Under the Congressional Review Act (CRA), Congress can review rules issued by government agencies, such as the CFPB. With a majority vote, Congress can overturn the rule. The CRA also prevents other agencies from drafting “substantially similar” rules.

Senators Tom Cotton (R-Arkansas) and Mike Crapo (R-Idaho) are leading the charge to review the CFPB’s Arbitration Rule, claiming that the CFPB remains an unaccountable bureaucracy, and therefore its rules should be overturned.

The debate about the Arbitration Rule will be interesting with Republicans attempting to overturn what is viewed as a pro-consumer rule.

Critics of the CFPB’s Arbitration Rule cite to the cost of increased consumer class actions, often with little benefit to the consumer. Class members rarely see large payouts, while the cost of defending proposed class actions may affect the ability of financial institutions to provide credit at lower rates.