By the hair of its chinny chin chin, the Senate voted on Tuesday to nullify the CFPB’s previously announced final rule that would have prohibited banks, credit card companies, and other financial service entities from utilizing arbitration agreements to block or limit class action suits by consumers.
The vote took place pursuant to the Congressional Review Act, 5 U.S.C. § 801 et seq., which allows Congress to invalidate regulations promulgated by executive agencies within 60 legislative days of publication by a simple majority vote in both the House and Senate. After a long, heart-felt debate on the Senate floor, all Democrats and two Republicans (Sens. Lindsey Graham of South Carolina and John Kennedy of Louisiana) voted against nullification, but the resulting 50-50 tie was broken by Vice President Mike Pence.
The House had already voted overwhelmingly in favor of nullifying the rule in July. The only remaining piece of the puzzle for complete nullification is the blessing of President Trump. Given the Trump administration’s views on regulation and the president’s continued praise for those opposing this rule, the likelihood of the president disapproving this nullification appears extremely small.
Under the Congressional Review Act, the nullification not only kills this version of the rule, but also prohibits the issuance of “a new rule that is substantially the same … unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.” As such, there is little chance that any type of rule limiting arbitration clauses will be issued in the foreseeable future.
Arbitration clauses with class waivers have been an effective tool for avoiding class litigation thanks to cases such as AT&T v. Concepcion, which held that the Federal Arbitration Act generally preempted state rules that classified arbitration clauses with class waivers in consumer contracts as unconscionable (563 U.S. 333, 340 (2011)). Thanks to the Senate’s vote on Tuesday, companies can continue relying on these types of holdings, utilizing arbitration clauses, and limiting a consumer’s ability to join or initiate a class action lawsuit.
The Senate’s vote also avoids potential constitutional challenges to the CFPB’s rule. As such arbitration agreements are made generally enforceable under the Federal Arbitration Act, the CFPB’s rule prohibiting a certain class of such agreements could be challenged as a revision to the FAA that only Congress could accomplish through the normal legislative process — and therefore could not delegate to the CFPB to decide. In addition, the CFPB’s structure has been challenged as unconstitutional in a case pending before the D.C. Circuit en banc, and the U.S. Chamber of Commerce had just filed suit to enjoin the rule as being inconsistent with the limitations imposed by the Dodd-Frank Act.
While the full extent of political backlash to Congress’ action remains to be seen, several groups and individuals immediately spoke out on each side of this Congressional decision. CFPB Director Richard Cordray stated minutes after the vote, “Wall Street won and ordinary people lost.” Similarly, Sen. Elizabeth Warren (D-Mass.) turned her attention directly toward President Trump, asking him to follow through on his promises of standing up to Wall Street. Conversely, Keith A. Noreika, Acting Comptroller of the Currency, released a statement praising the Senate for the vote, stating that the rule would have increased the cost of credit for hardworking Americans and had a detrimental impact on small community banks. In the coming days, there will undoubtedly be vigorous rhetoric on both sides of this decision, but the fact remains that the rule has likely been stopped in its tracks.