25 October 2017 Senate clears measure overturning CFPB's arbitration rule, 51-50 Vice President breaks tie vote to send measure to President; Bureau's rule would have barred financial contracts from requiring arbitration for dispute resolution On October 24, 2017, the Senate approved, by a vote of 51-50 — with Vice President Pence voting in favor to break a tie — a joint resolution (HJ Res 111) that would overturn the Consumer Financial Protection Bureau's recently finalized rule on mandatory arbitration clauses in financial contracts. The action was taken under expedited procedures established by the Congressional Review Act. The House had previously passed the measure, called a joint resolution of disapproval, by a vote of 231-190 on July 25, so the Senate's action clears the measure for the President's signature, and President Trump is expected to sign it. Among Republicans, Lindsey Graham (R-SC) and John Kennedy (R-LA) voted against the disapproval resolution. All Democratic and Independent Senators voted against the resolution. Attached with this Alert, please find the text of HJ Res 111 and PDFs of a report issued by Treasury critical of the Bureau's arbitration rule, as well as a response from the CFPB. The 1996 Congressional Review Act allows Congress to vacate rules promulgated by federal agencies under an expedited process — notably, with a simple majority vote in the Senate, preventing filibusters — if the measures are considered within 60 legislative days of being issued. While the CRA process was used rarely before this year, Congress has passed and the President has signed more than a dozen such resolutions overturning a number of different rules so far this year. On the Senate floor, Banking Committee Chairman Mike Crapo (R-ID) said the CFPB's rule, which was finished in July, would enrich the plaintiff's bar and encourage frivolous lawsuits. Crapo offered a lengthy criticism of the cost-benefit analysis the CFPB had undertaken as it prepared the rule. Crapo also argued that while arbitration clauses block class action lawsuits, most such clauses in financial contracts allow consumers recourse to small-claims courts. Ranking Member Sherrod Brown (D-OH) defended the CFPB's rule, citing the cyber-theft of 145 million Americans' financial information from Equifax — one of the three U.S. credit reporting bureaus — as well as the opening of fraudulent consumer accounts by Wells Fargo Bank as reasons not to continue a policy of "forced arbitration." Elizabeth Warren (D-MA) said the measure would represent "a vote against our service members and veterans." On October 23, the Treasury Department released a 17-page report finding that the rule would impose "enormous" costs. "The Bureau has not made a reasoned showing that increased consumer class action litigation will result in a net benefit to consumers or to the public as a whole," the report said. "Based on the Bureau's own data, it is far more likely that the rule will generate massive economic costs — borne by businesses and consumers alike — that dwarf the speculative benefits of the Bureau's theorized increase in compliance." In response, the CFPB disputed Treasury's conclusions, saying the agency had underestimated the benefits from class action settlements and the deterrence effect of class actions; overstated the cost of class actions; and misstated the impact of the rule on individual arbitration. See the CFPB's rule on arbitration clauses, and related materials.
Document ID: 2017-1769 | |||||
