(Since this article was originally published, the CFPB issued its final rule.)
Congressman Jeb Hensarling, chair of the House Financial Services Committee and longtime critic of the CFPB, is threatening the bureau’s Director, Richard Cordray, with possible contempt proceedings if the CFPB introduces its final rule on arbitration before supplying the committee with more information, according to a report in the Washington Examiner.
Rep. Hensarling (R-Texas) warned Cordray in a letter sent July 7 that an attempt to follow through with the arbitration rule before responding to a committee subpoena “may lead to contempt proceedings,” according to the report. Specifically, the committee has asked for information about the agency’s deliberations over the rule and its conversations with outside consumer groups.
Republican lawmakers and the financial services industry, including the NBPCA, have voiced concerns about the CFPB’s proposed arbitration rule. Although the proposal doesn’t explicitly ban arbitration agreements, it does prohibit class action litigation waivers from being included in arbitration clauses. That could be problematic, particularly for smaller organizations, if their businesses are opened up to the liability of class-action litigation. The CFPB estimates the proposed rule now being finalized would cost the roughly 53,000 financial services companies that currently use arbitration agreements between $2.62 billion and $5.23 billion over the next five years to defend an additional 6,042 class actions that will be brought by plaintiffs.
Critics of the proposal are quick to point out that the proposal ignores the CFPB’s own research, which indicates that arbitration is often faster, less expensive, and a more effective way for consumers to resolve disputes with companies when compared with class action litigation. For example, of the 562 class action studied by the CFPB, the average cash settlement was $32.35 per consumer, and class action litigation took an average of two or more years. In contrast, the average amount received by consumers who prevailed in arbitration was $5,389, with an average arbitration time frame of two to seven months.
Rumors Swirl around Cordray’s Departure
Despite the criticism, rumors are swirling that the CFPB will issue its final rule on arbitration this month. There are additional rumors that Cordray will be leaving the agency to run for governor of Ohio. Some in the industry are hopeful that Republicans in Congress would use the Congressional Review Act to repeal the arbitration rule, while others are looking to Director Cordray’s eventual replacement to stay the compliance date of the rule.
Ballard Spahr Partner Alan Kaplinksy notes in a recent Consumer Finance Monitor blog that the latter remedy may not be as clear-cut for a new Trump-appointed director. He points to a recent ruling by the U.S. Court of Appeals for the D.C. Circuit in Clean Air Council v. Pruitt, which “raises questions as to whether Director Cordray’s successor could validly issue such a stay unilaterally. In that decision, the D.C. Circuit ruled that the EPA lacked authority to stay the compliance date of an EPA rule concerning methane and other greenhouse gas emissions and vacated the stay.”
Based on the D.C. Circuit’s Clean Air Council decision, Kaplinsky suggests that a new CFPB head could issue a notice of proposed rulemaking to reconsider a final arbitration rule, but he or she might not be able to unilaterally stay the final rule’s compliance date.
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