Pub. 12 2017-2018 Issue 4

WWW.NEBANKERS.ORG 14 The overturn of the arbitration rule and using the CRA against future rule writing by the CFPB could be viewed positively by the financial services industry initially, but could be more of a problem down the road. Counselor’s Corner — continued from page 13 limitation. Second, the CFPB required covered providers who include pre- dispute arbitration agreements in their contracts to submit certain arbitration information to the CFPB for review and publication. The CFPB intended to publish collected materials with redactions on its website to “provide greater transparency into the arbitration of consumer disputes,” and planned to use the collected infor- mation to monitor “arbitral and court proceedings to determine whether there are developments that raise consumer protection concerns that may warrant further [CFPB] action.”⁹ Shortly after CFPB promulgation, Congress introduced a resolution under the CRA to kill the arbitration rule before it took effect. Vice President Mike Pence broke a 50-50 tie in the Senate on Octo- ber 24, 2017, narrowly passing S.J. Res. 47 disapproving the arbitration rule.¹⁰ On November 1, 2017, President Trump signed the resolution.¹¹ Following President Trump’s signing, Acting Comptroller of the Currency Keith Noreika praised the president’s action as “a victory for consumers and small and midsize banks across the country” by stopping a rule “that likely would have sig- nificantly increased the cost of credit for hardworking Americans and taken away a valuable tool for resolving differences among banks and their customers.”¹² The national bank regulator said that the move “preserves a choice for consumers who can choose among financial providers that offer services with arbitration clauses and those that do not.” With this action by the president and Congress, the arbitration rule is dead, at least for now. Under the CRA, not only is the CFPB barred from enforcing the arbitration rule, but likewise the arbitra- tion rule may not be re-promulgated in “substantially the same” form without an enactment of Congress. During a GOP-controlled Congress, that action is unlikely. The scope of this “substantially the same” standard, however, has not been addressed by the courts. Can the CFPB craft a new arbitration rule different enough to avoid being “substantially the same”? Any such attempt by the CFPBwill surely be challenged.¹³ Are CFPB Arbitration Restrictions Completely Dead? Although the arbitration rule is dead without a chance of re-introduction in “substantially the same” form, the CFPB is not entirely shut out from regulating arbi- tration clauses. The CFPB could conceiv- ably resort to doing it the old fashion way, on a case-by-case basis using its existing enforcement and supervisory authority (UDAAP anyone?). This, however, seems unlikely as Director Cordray has resigned and as such, regulation by enforcement may slow considerably. Moreover, the demise of the arbitra- tion rule does not affect other current restrictions on arbitration. For example, in 2006, Congress passed the Military Lending Act, which disallows mandatory arbitration clauses in connection with certain loans made to service members (this is still the law). Four years later, in Dodd-Frank, Congress barred manda- tory arbitration clauses in certain resi- dential mortgage contracts. As such, the arbitration rule is dead but other CFPB limitations remain. CFPB’s Future CRA Risk What does this mean for the CFPB going forward? The fact that Congress actually succeeded in coordinating and overturning the arbitration rule using the CRA could be problematic for the CFPB, with respect to additional rules it puts forward. For example, the CFPB has recently finalized a rule that would largely overhaul the small dollar lending industry, and that rule could be subject to a similar overturn by Congress. And the new CFPB Fair Debt Collection rules are expected to be proposed shortly. Because of this CRA success by the president and Congress, the CFPB could be discouraged from promulgating more rules. That result would not necessarily be good news for banks, as the CFPB still would have its full enforcement author- ity and could continue down a path of regulating by enforcement, as compared to regulating by rules. Banks are already critical of the CFPB for seeming to avoid a rules-based form of regulation in favor of using enforcement (e.g., UDAAP) to ef- fectively regulate similarly situated banks. As such, the overturn of the arbitration rule and using the CRA against future rule writing by the CFPB could be viewed posi- tively by the financial services industry initially, but could be more of a problem down the road. Will the CRA Go Silent Soon? As mentioned, prior to President Trump, the only successful use of the CRA was President Bush overturning President Clinton’s ergonomics rule promulgated at the end of Clinton’s term. President Trump was successful in overturning the arbitration rule, a rule that began in the