This article first appeared on the Securities Arbitration Alert (SAA) blog, here.
A CFPB taskforce on consumer financial law issued a massive report in early January, with hardly a reference to arbitration.
The Consumer Financial Protection Bureau’s (“CFPB”) Taskforce on Federal Consumer Financial Law has issued a 900+ page report containing several findings and recommendations, none of which pertain to arbitration. The two-volume Taskforce on Federal Consumer Financial Law Report (Volume I is here; Volume II here) was announced in a January 5 Press Release.
Past CFPB Efforts to Regulate Consumer Financial Arbitration
The CFPB under the Obama administration aggressively exercised its authority under Dodd-Frank to restrict, eliminate, or set conditions on the use of predispute arbitration agreements (“PDAA”) in consumer financial products and transactions. This was embodied in a 2017 regulation that would have: 1) permitted predispute arbitration agreements in contracts for consumer financial goods and services; 2) banned class action waivers in PDAAs; and 3) required regulated financial institutions to file customer claims and awards data with the CFPB, which the Bureau intended to publish in redacted form. Later that year, the CFPB’s arbitration rule was retroactively nullified when President Trump signed into law H.J. Res. 111, a Joint Disapproval and Nullification Resolution (see SAA 2017-41 (Nov. 1)). Congress had exercised its authority under the Congressional Review Act, (“CRA”) 5 USC §§ 801 et seq., which allows Congress to legislatively nullify any regulation within 60 legislative/session days of its publication.
New Report Hardly Mentions Arbitration
Given this past history, it’s not surprising that the Report has few references to arbitration, and those are neutral or even positive. After noting the nullified attempt to restrict class action waivers, the Report states at Volume I, p. 248: “Arbitration and other types of alternative dispute resolution reduce the costs of conflict resolution and thereby enable consumers to better vindicate their rights without requiring a lawyer and extensive litigation. Arbitration tends to be relatively informal and often does not require a lawyer. Lawsuits, by contrast, are highly formal, and failure to use a lawyer risks running afoul of the various rules and complexities of court proceedings, resulting in the dismissal of one’s case.”
Biden Administration will Likely Take on Arbitration
It seems likely to us that the Biden CFPB will resurrect the arbitration rule, perhaps this time taking on PDAAs as well as class action waivers. We say “Biden CFPB” because the President now has the legal authority to terminate the Director at will. In a narrow decision split along ideological lines, SCOTUS held in Seila Law LLC v. Consumer Financial Protection Bureau, 140 S.Ct. 991 (Feb. 14, 2020), that the structure established by Dodd-Frank is unconstitutional as to limits on the President’s power to remove the director. Said Chief Justice Roberts’ majority Opinion: “We therefore hold that the structure of the CFPB violates the separation of powers. We go on to hold that the CFPB Director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority. The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.” Based on this ruling we are pretty certain President Biden will replace Trump-era Director Kathy Kraninger with his own nominee who will pursue the Democrats’ anti-mandatory predispute arbitration agenda* in the consumer and employment areas. And, as reported elsewhere in this Alert, there is already media speculation that Mr. Biden intends to nominate Federal Trade Commission member Rohit Chopra as the next Director.
(ed: *See, e.g., 2020 Democratic Party Platform, p. 24: “Consumers, workers, students, retirees, and investors who have been mistreated by businesses should never be denied their right to fight for fair treatment under the law. Democrats will support efforts to eliminate the use of forced arbitration clauses in employment and service contracts, which unfairly strip consumers, workers, students, retirees, and investors of their right to their day in court.” **The Release has a nice summary of the Task Force’s findings and recommendations. ***Not to be sticklers, but the Report uses the header and logo “Bureau of Consumer Financial Protection” which was floated but dropped as a name change in 2017.)
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