Update - Senate Unwinds CFPB Arbitration Rule
ABSTRACT: Following the issuance of the CFPB's Rule prohibiting arbitration clauses for waiver of consumer class action rights, the U.S. Senate wasted no time in passing legislation to overturn the CFPB rule. The law passed by the Senate restores law regarding arbitration provisions to the status quo.
It ended before it ever began. As reported in a prior post, in July of 2017, the Consumer Financial Protection Bureau (the “CFPB”) enacted a new rule that would have prohibited financial institutions from including arbitration provisions in their contracts with customers wherein the customers waived their right to bring class action litigation against the creditor. The new rule was set to take effect in early 2018.
Not under our watch, said the United States Senate. Promptly following the CFPB’s issuance of the new arbitration rule, Sen. Mike Crapo of Indiana introduced S.J.Res.47, “Providing for congressional disapproval under chapter 8 of title 5, United States Code, of the rule submitted by Bureau of Consumer Financial Protection relating to “Arbitration Agreements.” The resolution required only a simple majority vote to be enacted into law. Indeed, the resolution came down to a 51-50 vote, with Vice President Mike Pence breaking the tie.
The CFPB rule was designed with the intention of protecting consumers from an unknowing waiver of their right to pursue legal remedies, such as class action litigation. Research revealed that 3 out of 4 consumers who had entered into such arbitration clauses in their loan agreements were not aware they had done so.
Critics of the arbitration rule have maintained that the rule is a violation of individuals’ freedom to contract – after all, the consumer arguably could choose not to do business with that lender if unhappy with the terms of the agreement. Furthermore, many observed that the only parties who stood to benefit from the prohibition of class action waivers are the plaintiff’s attorneys representing consumers, and not the consumers themselves, since individual payouts from class litigation are often nominal.
Responding to the Senate’s vote to overturn the arbitration rule, CFPB Director Richard Cordray called the decision a “giant setback for every consumer in this country” and predicted that financial institutions would now “remain free to break the law without fear of legal blowback from their customers.”
Conversely, the Trump Administration commended the result of the Senate’s Vote, in a statement released shortly thereafter: "By repealing this rule, Congress is 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.”
So, while these consumer credit arbitration clauses will likely remain a controversial topic for years to come, the rule intended to get rid of them has instead been extinguished.

CFPB Rule Precluding Reporting of Consumer Medical Debt On Hold Until June or Later ...

About Financial Services Law Blog
Baker Sterchi's Financial Services Law Blog explores current events, litigation trends, regulations, and hot topics in the financial services industry. This blog informs readers of issues affecting a wide range of financial services, including mortgage lending, auto finance, and credit card/retail transactions. Learn more about the editor, Megan Stumph-Turner, and our Financial Services practice.
Subscribe via email
Subscribe to rss feeds
RSS FeedsABOUT baker sterchi blogs
Baker Sterchi Cowden & Rice LLC (Baker Sterchi) publishes this website as a service to our clients, colleagues and others, for informational purposes only. These materials are not intended to create an attorney-client relationship, and are not a substitute for sound legal advice. You should not base any action or lack of action on any information included in our website, without first seeking appropriate legal or other professional advice. If you contact us through our website or via email, no attorney-client relationship is created, and no confidential information should be transmitted. Communication with Baker Sterchi by e-mail or other transmissions over the Internet may not be secure, and you should not send confidential electronic messages that are not adequately encrypted.
The hiring of an attorney is an important decision, which should not be based solely on information appearing on our website. To the extent our website has provided links to other Internet resources, those links are not under our control, and we are not responsible for their content. We do our best to provide you current, accurate information; however, we cannot guarantee that this information is the most current, correct or complete. In addition, you should not take this information as a promise or indication of future results.
Disclaimer
The Financial Services Law Blog is made available by Baker Sterchi Cowden & Rice LLC for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. Your use of this blog site alone creates no attorney client relationship between you and the firm.
Confidential information
Do not include confidential information in comments or other feedback or messages related to the Financial Services Law Blog, as these are neither confidential nor secure methods of communicating with attorneys. The Financial Services Law Blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.