House Votes to Overturn CFPB Mandatory Arbitration Ban

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends much of her time in Asia and is currently working on a book about textile artisans.

As expected, the House of Representatives voted yesterday to overturn the Consumer Financial Protection Bureau’s (CFPB) ban on mandatory arbitration, the Arbitration Agreements Rule.

The House relied on the Congressional Review Act (CRA), which provides expedited procedures for passing legislation rescinding any regulation that was finalized in the preceding 60 session days, by simple majority votes in each chamber. There is no need for prior committee consideration by either house, and the measure is exempt from a possible Senate filibuster. Once the CRA resolution of disapproval is signed by the President, the rule is rescinded.

Short-Lived Final Arbitration Agreements Rule

As the agency explained in its press release announcing the rule on July 10:

Many consumer financial products like credit cards and bank accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing. By forcing consumers to give up or go it alone – usually over small amounts – companies can sidestep the court system, avoid big refunds, and continue harmful practices. The CFPB’s new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.

I refer readers to Bill Black’s excellent post, Bill Black: The CFPB Arbitration Rule is Pro (Honest) Businesses, discussing the criminogenic environment that led the agency to promulgate this rule in the first instance and outlining why it was desperately needed.

My August post, Business Groups Aim to Strong-Arm CFPB on Arbitration, provides further detail on this issue, particularly on the importance of the admittedly imperfect mechanism of class action lawsuits to deter corporate misbehavior in the absence of effective action by regulators and prosecutors.

The Senate is now expected to vote on overturning the arbitration rule in September– according to this WSJ article,  House Votes to Repeal CFPB’s Arbitration Rule. Given the financial and corporate lobbying firepower that’s been deployed on this issue, that body will almost certainly vote to overturn the rule, over the strenuous objections of consumer advocates, as reported by US News and World Report in Republicans Move to Repeal Financial Rule Opposed by Banks:

“Unfair clauses hidden in the fine print of consumer contracts may be the single most pernicious tactic that the financial industry uses to escape accountability for cheating, conning, fleecing, defrauding and plundering consumers,” said Lisa Gilbert, a vice president at Public Citizen.

The White House has already made its position on the matter clear, issuing a statement saying it “strongly supports” the House bill that would nullify the rule:

If allowed to take effect, the CFPB’s harmful rule would benefit trial lawyers by increasing frivolous class-action lawsuits; harm consumers by denying them the full benefits and efficiencies of arbitration; and hurt financial institutions by increasing litigation expenses and compliance costs (particularly for community and mid-sized institutions). In many cases, these increased costs would be borne, not by the financial institutions, but by their consumers.

That means that once the full CRA process is complete– the new rule will be dead.

And, to make matters even worse for consumers, as regular readers who have been following my earlier CRA coverage know and I wrote in Trump and Congress Use Congressional Review Act to Roll Back 14 ‘Midnight’ Rules; More to Follow?:

Crucially and importantly, once the regulation has been successfully voided, the regulatory agency is barred from reviving the rule in “substantially the same form”– forever–in the absence of new legislative authority.

To repeat: This means the CFPB will not be able to reconsider this issue anytime soon, and indeed, further legislation would be necessary to authorize any future rulemaking.

Long Gestation: Why Did Cordray Wait So Long to Issue the Rule?

This leads me to a fairly obvious question: Why did CFPB director Richard Cordray wait so long for the agency to issue the rule banning mandatory arbitration? By deferring this decision until well into the Trump administration, the agency was setting itself up for this entirely predictable and inevitable CRA challenge.

Now, permit me a short aside. Although Cordray has yet to announce any formal intentions in this regard, he is widely expected soon to leave the CFPB to return to his home state of Ohio to run for governor– according to this Housing Wire piece, CFPB Director Cordray will run for Ohio governor, says state Supreme Court justice.

Issuing the rule earlier this month is one way of further shoring up his consumer protection bona fides– even though he certainly understood full well that Congressional Republicans and Trump would almost inevitably use the CRA to scupper one of his agency’s signature achievements. But the pending gubernatorial run merely explains why the rule was ultimately promulgated– and doesn’t address the reasons for the delay.

On that issue: I have never really understood why Cordray didn’t push for the agency to issue the rule far earlier than it did. After all, way back in December 2013 the CFPB released a preliminary but comprehensive study on the use of mandatory arbitration clauses. Reigning in mandatory arbitration– in the wake of Supreme Court decisions that allowed the practice to continue and spread– has long been a major consumer protection priority.

So, I repeat, why did the process take so long?

My guess is that Cordray and the agency were probably concerned about a court challenge and a possible overturn of the rule– not an idle concern, incidentally, and an issue that I discussed in my post cited above, Business Groups Aim to Strong-Arm CFPB on Arbitration). Business organizations such as the US Chamber of Commerce have effectively thwarted rule-making by the Securities and Exchange Commission and the Environmental Protection Agency on certain issues, to name just a couple of examples, by aggressively filing lawsuits.

But hiding under the bed and failing to issue a mandatory arbitration rule wasn’t going to make that lawsuit goblin go away. So I fail to see what purpose was served by the delay.

And unfortunately, in attempting to sidestep one goblin, the agency left itself open to attack by the CRA goblin, when, after the election, the Republicans retained control of both houses of Congress  and Trump was installed in the White House.

What Next?: The Bottom Line

As I discussed in my earlier post, Mandatory Arbitration Clauses: What’s Next?, this is an area in which action by consumer-friendly state regulators– such as California, which has mulled its own anti-arbitration regime– won’t be able get around the Federal Arbitration Act (FAA) , which preempts any state measures and makes arbitration agreements “valid, irrevocable, and enforceable.” The Supreme Court has ruled against states creating categorical exemptions to the FAA absent Congressional authorization.

That means once the CRA process is completed, mandatory arbitration will be here to stay– for the indefinite future.  Only new authorizing legislation– followed by subsequent rule-making by the CFPB or another federal agency– or the equivalently remote alternative of a major change in Supreme Court thinking on this issue, can reverse this situation.  And– at the risk of stating the obvious– neither of these possibilities looks likely to occur anytime soon.

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  1. Olga

    Honestly, reading all the news, one wonders why we haven’t yet had our own 7/14/1789 all over again. We are way overdue… (having used the agency, it is prob one of the very few good things the big O left behind).

    1. Jim Haygood

      ‘California, which has mulled its own anti-arbitration regime, won’t be able get around the Federal Arbitration Act (FAA), which preempts any state measures and makes arbitration agreements “valid, irrevocable, and enforceable.”’

      Yet another cause célèbre for Calexit … though Cali probably would need to create its own stock exchange, to keep it all intrastate and out of the hands of the grasping, anti-consumer, anti-populist regime in Washington DC.

    2. sgt_doom


      The only sources I heard any sympathy from when that congress critter was shot in Alexandria, VA awhile back was were those Fake Newsies; nary a sound of sympathy from any of my fellow citizens!

  2. Clive

    Unfortunately for months Cordray has been a cardboard cut-out CFPB director. He left the building in all but name to organise his political ambitions. While not a totally bad sort, he played the beltway game rather too much instead of a “I’m gonna do the right thing come what may and let the devil take the hindmost” approach — which I think is what was needed in his role.

    I hope Ohio voters take note. We’re long, long past the point where political gamesmanship will do the trick in terms of improving the lot of the proletariat in the face of the aggressive corpocacy. Cordray is like Kamala Harris without the benefit of identity politics.

    1. Arizona Slim

      I’m hoping that Nina Turner will get into the Ohio gubernatorial race. She’d really give Cordray a run for his money in the D primary.

      She’d probably have the same “Why’d you take so long?” questions that we’re asking right here. And she’d have a much bigger megaphone.

      1. JohnnyGL

        Wiser heads have already prevailed in OH Dem Party, and they’re looking for someone that’s not Nina Turner.

        Instead, they’re angling for….wait for it….Jerry Springer!!!

  3. L

    Not to be too cynical but, by delaying the rule Cordray can serve two ends. He can, as you say, boost his bona fides as someone who cares about this without actually doing anything of substance. Much like Cory Booker and some other masters of the practice he can take a stand that will woo voters without actually deeply offending an industry that might wage war on him. Indeed they might even reward his slow walk with a few dollars here and there.

    For an ambitious politician this is what the Chinese call a “win-win”.

    1. Romancing The Loan

      I also immediately thought of this motivation. Isn’t it clear by now that sabotaging their own initiatives is a major part of the D party playbook?

    2. diptherio

      Exactly. Even if that wasn’t his motivation, it sure as heck looks like it was. In fact, I was surprised that Jerri-Lynn didn’t mention it as a possibility. “How can I look like I’m doing something, without upsetting possible campaign contributors, and be able to blame the other side for the problem?….I’ve got it!”

      The problem with politics is, largely I think, the preponderance of politicians engaged in it. If only politicians could be banned from participating in politics or holding political office, the world would be a much more enjoyable — and rational — place to inhabit…imho.

    3. Code Name D

      I quite agree. Cordray’s REAL job was to make sure regulations like this never get enacted. The law-suit angel is just the justifcation invented to defend the inaction. The only thing that has changed is “resist”, where Dems now make a show of “resisting” in order to burnish the Democratic brand. In their minds, its a two birds but one stone kind of win-win. It demonstrates how “bad” Trump is, and by extension, how good the Dems are. (See, Clintion would never have done this.). It also, in their minds at least, discretits the left. (See, we told you it wouldn’t work.)

  4. Vatch

    Here’s the roll call vote (231-190):

    Walter Jones of North Carolina was the only Republican to vote against this resolution. He’s also the only Republican to have co-sponsored HJR48 (Proposing an amendment to the Constitution of the United States providing that the rights extended by the Constitution are the rights of natural persons only), and only one of two Republican co-sponsors of HR790 (Return to Prudent Banking Act of 2017 [Glass Steagall restoration]). Mike Coffman of Colorado is the other Republican co-sponsor of HR790, but he voted against consumers on the matter of arbitration.

  5. grayslady

    I don’t think this is about Cordray directly. This was a completely partisan vote. All Republicans voted to gut the provision, except for Walter Jones; all Democrats voted to keep it. That tells me there was enormous leadership pressure on both sides. My guess is that the voting would have been similar under Obama, which would have left the President with egg on his face. He would have been seen as someone who, while able to push through the concept of the CFPB, couldn’t push through the necessary enforcement provisions to make the entity viable. Better for the Dems to try and blame any failures on Trumpism. If I were to guess, Cordray was asked to hold off on the rule making in return for financial support when he announced his political ambitions in Ohio. It’s out of the playbook that dangled the senate run in front of Liz Warren. At the same time, Democrat support for the measure plays to the financial backing of all the law firms that the Dems count on for campaign contributions.

    1. Jerri-Lynn Scofield Post author

      No, things would not have been the same if the CFPB had promulgated the rule before June 13, 2016– that 60 session day deadline before the new Cong and Trump took over. B/c during the last admin, even if a simple majority could have been found in both houses of Congress for a CRA resolution of disapproval, it would have been vetoed by the Pres. And rule opponents would not have been able to muster a 2/3 majority to overturn the veto. So, not getting the rule out earlier proved to be a huge mistake.

      1. Vatch

        The Obama administration made that mistake on several regulations. It was so common that people have reasonably concluded that some of the mistakes were intentional.

        1. Jerri-Lynn Scofield Post author

          Certainly possible. Either that or they just didn’t consider seriously that HRC would lose. Or perhaps no one thought any of these issues through– after all, using the CRA in this way and to this extent hadn’t been done before.

          1. JohnnyGL

            Dems do these sort of things way too often NOT to be intentional.

            Remember how Obama blocked DAPL, but only AFTER Trump won? Of course he did so knowing that Trump would overturn it. If he was sincere, why not overturn sooner when protestors were getting hosed with water cannons?

            It seems quite clear that it’s because Obama didn’t want HRC to look bad when she overturned the ban with her own executive order. Or, maybe if HRC won, he never would have blocked it in the first place?

            1. TimmyB

              Exactly right. Our politics is a phony show same as professional wrestling. Team Blue and Team Red engage in staged, highly choreographed “fights” designed to entertain and enrage each team’s supporters. But the reality is that these “fights” were fixed months ago. The owners always win and the spectators/fans always get fleeced.

      2. grayslady

        That is certainly a good point. The question is whether Obama would have issued a veto, or wanted to be placed in the position of having to issue a veto. He only issued twelve vetoes during his eight years in office, of which five were issued in 2016. The one veto he issued that might be seen as going up against the financial powers related to the definition of “fiduciary” regarding retirement accounts. In his final year in office, looking forward to future corporate favors, he may have been unwilling to confront the issue; always assuming, as you mention below, that the topic was even on the radar.

        1. johnnygl

          Coudray was likely told to sit tight and don’t force the boss (obama) to make hard decisions.

          Much like the CA speaker of the house is taking one for team Dem at the state level and not forcing the governor or his colleafues into a tough decision.

    1. Vatch

      Sen. Mike Lee of Utah just joined as the 26th co-sponsor. He must have been afraid of losing some lucrative largesse from billionaires and giant corporations.


    And unfortunately, in attempting to sidestep one goblin, the agency left itself open to attack by the CRA goblin, when, after the election, the Republicans retained control of both houses of Congress and Trump was installed in the White House.

    Difference being that he, and for that matter Dems generally, can blame it on a political goblin rather than a judicial goblin. While it’s certainly common for politicos to attack court rulings as unfair or unjust, it puts a much bigger damper on their arguments as the other side can simply say, “It’s the law, courts determined their side to be unconstitutional.” Greater weight there. Here, it’s just the will of the Republican party, so they can run on “Republicans want to make banks/cable companies/etc. exempt from the law.”

  7. edr

    What’s the ideology that drives the Supreme Court or a part of the Supreme court to vote to promote measures that increase fraud and suppress measures that decrease fraud and corruption ??? They aren’t dependent on Corporate Campaign finance and they aren’t influenced by the revolving door, unless its Corporate jobs for their kids? Do they believe that leaving their future progeny to a corrupt Oligarchy is a better form of governance? Does transforming the U.S. into a Banana Republic like Honduras, Nicaragua, or Brazil actually seem like a better outcome?

    Are they fighting some other type of outcome that they are more afraid of explain their actions, like Bureaucratic control of everything ? Isn’t it possible to imagine a 3rd way that decreases both bureaucracy and fraud/corruption ?

    1. oh

      IIRC, Clarence Thomas took some speaking fees. That could be one reason. Plus Thomas; wife works for a yuuge corporation, doesn’t she?

      1. Vatch

        In addition to what you point out, I really think that some of the conservatives on the Supreme Court and appellate courts genuinely believe a lot of strange things. They have been thoroughly indoctrinated by books, research papers, and seminars that were financed by squillionaires such as the Koch brothers. I pointed this out a couple of months ago, and I think it’s worth repeating. The Koch brothers and their allies have devoted hundreds of millions of dollars to the support of “free market” academics. Their well oiled propaganda machine is vast. From Dark Money, page 448, by Jane Mayer:

        By 2014, the various Koch foundations alone were funding pro-corporate programs at 283 four-year colleges and universities.

        A student at one of those institutions of learning complained:

        “We learned that Keynes was bad, the free-market was better, that sweatshop labor wasn’t so bad, and that hands-off regulations in China were better than those in the U.S.”

        It’s like a religious cult; and they’ve drunk the kool-aid. It’s hard to break habits that they’ve spent their entire lives developing.

    2. Clive

      This question has got me thinking of late, too. I really don’t have a good answer. I can’t help but contrast with the UK Supreme Court which only yesterday issued a ruling which contained this notion which I feared was in danger of becoming lost forever:

      People and businesses need to know, on the one hand, that they will be able to enforce their rights if they have to do so, and, on the other hand, that if they fail to meet their obligations, there is likely to be a remedy against them. It is that knowledge which underpins everyday economic and social relations. That is so, notwithstanding that judicial enforcement of the law is not usually necessary, and notwithstanding that the resolution of disputes by other methods is often desirable.

      Equally, although it is often desirable that claims arising out of alleged breaches of [rights] should be resolved by negotiation or mediation, those procedures can only work fairly and properly if they are backed up by the knowledge on both sides that a fair and just system of adjudication will be available if they fail. Otherwise, the party in the stronger bargaining position will always prevail.

      UKSC to USSC — you suck at law.

      What has gone so badly wrong for the Supremes? Baby, baby, where did our love go?

  8. Tyronius

    Criminogenic regulatory environment. I will be looking for more of this in the future, I suspect I won’t have to look very hard.

    Goes right along with the post about Jamie Dimon’s recent rant.

    I wonder what it will take for Americans to realize their situation and get motivated to do something about it.

    For what it’s worth, I think the timing on the part of the outgoing CFPB chief is perfect; he can claim to his base to have tried, and can claim to his donors that he knew the CRA process would kill it in perpetuity. The only loser? The American consumer, but who cares about them/us?

  9. Cato

    Maybe waiting to issue the rule until now was a tactical error. I could see why somebody would say that the challenges that exist currently are the same ones that were apparent months ago. But I can also see how the Bureau is in a better position to issue the rule now, than it was pre-inauguration day. The GOP is not a unified body; it’s more fractured than ever before. I think the odds of survival are greater now than they were back in January.

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