Four questions as Senate vote nears on CFPB arbitration rule

October 24, 2017 1:25 PM

WASHINGTON — Republicans in Congress have intensified efforts to garner what would be a big legislative victory for banks and a significant defeat for the Consumer Financial Protection Bureau: overturning the rule that bans mandatory arbitration clauses.

The GOP appears to have barely enough votes to roll back the contentious CFPB rule, and floor debate was expected to begin Tuesday with a final vote possible at any time. But victory was not assured, as key GOP senators were still a question mark. Yet Democrats also faced the unexpected prospect of not having their whole caucus in town for a vote, which would give Republicans another advantage.

A rollback of the arbitration rule would be a setback for the CFPB at a time when the bureau’s standing in the Trump administration is unclear. But if the GOP fails to overturn the arbitration rule, it would immediately throw cold water on industry efforts to whittle away at the CFPB’s power.

Before this year, the Congressional Review Act was a relatively obscure vehicle for members of Congress to try to undo regulations on various sectors. But it has picked up steam under the Trump administration as leaders both GOP-controlled houses of Congress look to reverse Obama-era rules. However, under the law, Congress only has 60 session days to pass the measure — from when a final rule is published — meaning that the clock is likely to run out in mid-November.

Following are frequently asked questions about how it could play out and what the consequences would be:

WASHINGTON — Republicans in Congress have intensified efforts to garner what would be a big legislative victory for banks and a significant defeat for the Consumer Financial Protection Bureau: overturning the rule that bans mandatory arbitration clauses.

The GOP appears to have barely enough votes to roll back the contentious CFPB rule, and floor debate was expected to begin Tuesday with a final vote possible at any time. But victory was not assured, as key GOP senators were still a question mark. Yet Democrats also faced the unexpected prospect of not having their whole caucus in town for a vote, which would give Republicans another advantage.

A rollback of the arbitration rule would be a setback for the CFPB at a time when the bureau’s standing in the Trump administration is unclear. But if the GOP fails to overturn the arbitration rule, it would immediately throw cold water on industry efforts to whittle away at the CFPB’s power.

Before this year, the Congressional Review Act was a relatively obscure vehicle for members of Congress to try to undo regulations on various sectors. But it has picked up steam under the Trump administration as leaders both GOP-controlled houses of Congress look to reverse Obama-era rules. However, under the law, Congress only has 60 session days to pass the measure — from when a final rule is published — meaning that the clock is likely to run out in mid-November.

Following are frequently asked questions about how it could play out and what the consequences would be:

Senator Lindsey Graham, a Republican from South Carolina, listens during a Senate Judiciary Committee hearing in Washington, D.C., U.S., on Wednesday, July 26, 2017. The hearing is entitled Oversight of the Foreign Agents Registration Act (FARA) and Attempts to Influence U.S. Elections: Lessons Learned from Current and Prior Administrations. Photographer: Andrew Harrer/Bloomberg

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Does the GOP have enough votes?

The House, with a large Republican majority, was able to pass a Congressional Review Act measure to reverse the arbitration rule relatively easily. But the Senate is a different story.

Any vote will be close. With Democrats likely to oppose overturning the arbitration rule, Republicans need to rely on their slim four-vote majority in the Senate. Attention is focused on key GOP votes that are needed to maintain a margin of victory.

Sen. Lindsey Graham, R-S.C., has made clear he will not support legislation to overturn the rule and it is unclear how Sen. John Kennedy, R-La., will vote. He has previously only said that he is reviewing the issue.

If Graham and Kennedy both vote against the Congressional Review Act measure, then the window for a legislative victory is even slimmer.

Meanwhile, health issues for certain lawmakers have made it challenging for Republicans even to get their entire caucus in Washington.

Sen. John McCain, R-Ariz., was diagnosed with brain cancer in July and has been receiving treatment in Arizona. Sen. Thad Cochran, R-Miss., has also had medical problems and has been recuperating in Mississippi. The timing of their attendance has been critical to determining when a vote could occur. Both are in Washington this week, making it likely that Senate Majority Leader Mitch McConnell, R-Ky., will push for a vote.

If the vote breakdown looks even, Republicans could look to Vice President Mike Pence to cast a tie-breaking vote.

But the GOP appeared to have another ace up its sleeve. With questions looming about whether the GOP would have full attendance for a vote, the same question came up for Democrats, who need their full caucus to vote against the measure. The minority reportedly may be without Sen. Bob Menendez, D-N.J., who is back in his home state fighting corruption charges. But some thought Mendendez might make it back in time.

Lobbyists and GOP aids have indicated that McConnell would not bring a vote to the floor unless he was certain the Congressional Review Act to overturn the CFPB rule had enough support to pass, so if it is brought up for a vote, it seems likely it will pass.

Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), listens during a Senate Banking Committee hearing in Washington, D.C., U.S., on Thursday, April 7, 2016. Testimony from Cordray today may shed light on the status of several regulations that could curtail revenue from payday loans, prepaid cards and other financial products. At a March 16 hearing, Cordray hinted that a rule to limit prepaid cards won't be finished until June. Photographer: Andrew Harrer/Bloomberg *** Local Caption *** Richard Cordray

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What would a CRA reversal of the rule mean for the CFPB?

If the Senate overturns the arbitration rule, it would be a major blow to the CFPB’s agenda as it would highlight cracks in the bureau’s authority to regulate, possibly emboldening lawmakers to use the Congressional Review Act to roll back other CFPB policies. Another recent rule that lawmakers could reverse is the bureau’s new underwriting requirements for payday lenders, which has been panned by the industry.

If the arbitration repeal measure passes, President Trump is expected to sign it, which would invalidate the CFPB rule. Consumers subject to mandatory arbitration clauses would not be able to band together to sue financial firms in class-action lawsuits. Further, the CFPB would be prohibited from ever proposing such a regulation again, and federal courts also would not be able to intervene to side with the bureau.

The U.S. Department of the Treasury building stands in Washington, D.C., U.S., on Friday, July 29, 2011. President Barack Obama and congressional leaders began a fresh attempt to reach agreement on raising the U.S. debt cap, with a potential framework for a deal emerging two days before a default deadline. Photographer: Andrew Harrer/Bloomberg

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What would the Senate’s failure to pass the CRA measure mean for the CFPB?

While the CFPB rule would be preserved by the Congressional Review Act effort collapsing in the Senate, the bureau could still face a challenge to the arbitration rule from a lawsuit filed in September by the U.S. Chamber of Commerce, five bank trade groups and more than a dozen business groups.

The lawsuit received support from the Treasury Department, which said in a report Monday that the arbitration rule would cause severe economic harm to financial institutions.

Last week, the Chamber of Commerce filed a preliminary injunction to halt the rule. The injunction, filed in U.S. District Court for the Northern District of Texas, argues in part that the CFPB is unconstitutional and its actions are invalid.

The CFPB has two to three weeks to file a response to the lawsuit, and a judge could hold a hearing or otherwise decide whether to temporarily halt the rule while the lawsuit proceeds. It is possible that a judge would not grant a stay of the rule, and that regulated entities would have to prepare for the rule to go into effect in March. That would be a huge win for the CFPB.

Congress is set to take up its third government funding continuing resolution so far this fiscal year. New infrastructure funds need a full FY22 budget in order to begin to flow to states.

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What would either legislative outcome mean for banks?

Senate passage of the measure on arbitration would be one of the industry’s biggest policy victories since the creation of the CFPB, and would be seen as alleviating potential litigation costs from new class actions that many predict is the immediate consequence of the CFPB arbitration rule.

But if the Senate does not repeal the arbitration rule, then it would continue to go in effect in March. Banks, credit card companies and other financial firms would have to begin updating consumer contracts, eliminating mandatory arbitration clauses that force consumers to arbitrate disputes outside the legal system.

The rule would directly impact agreements governing credit cards, checking and deposit accounts, certain auto loans, money transfer services, prepaid cards, small dollar or payday loans, private student loans, and installment loans. (Mandatory arbitration clauses were prohibited in 2013 from being used in contracts for residential mortgages and home equity lines of credit.)

Companies that use mandatory arbitration agreements will have to change the language of new consumer contracts and use the specific language that CFPB requires. There must be a written provision that the company cannot stop consumers from banding together to sue in a class action.

The rule also would require that companies submit arbitration claims, awards and other information about individual disputes to the CFPB, which plans to monitor arbitration agreements. Many firms expect increased CFPB enforcement as a result.