Arbitration Rule Sets CFPB Up for Fight With Republicans

By Jeff Bater

Consumer Financial Protection Bureau Director Richard Cordray decided to pick a fight with congressional Republicans by releasing the long-awaited arbitration rule after the agency stayed mostly quiet during the early months of the Trump administration.

Cordray acknowledged Republican lawmakers are likely to challenge the rule and its issuance could also provide new fuel for President Donald Trump to fire him before his term ends next year.

Even if the rule does not accelerate Cordray’s dismissal, it could signal he’s thinking about leaving voluntarily sooner rather than later, Lucy Morris, a Washington-based partner at Hudson Cook who served as the CFPB’s deputy enforcement director from 2011 to 2014, told Bloomberg BNA in an email.

“His thinking might be, if not now, when?” Morris said.

The final rule issued July 10 bars the use of mandatory arbitration to block class-action lawsuits. The clauses are common in contracts for credit cards, checking accounts, payday loans, and other financial products.

Congressional Republicans and the financial services industry immediately criticized the final rule and signaled plans to challenge it.

“As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said in a statement.

Expecting a Fight

Cordray told reporters on a July 10 call that he’s aware some members of Congress will want to nullify the rule. “That is a process that I expect will be considered and determined on the merits,” he said. “My obligation as the director of the consumer bureau is to act for the protection of consumers and in the public interest,” Cordray added. “In deciding to issue this rule, that is what I believed I have done.”

Republican majorities in the House and Senate could use the CRA to nullify the rule, which would only require a simple majority in the Senate if taken up within 60 days of when the rule is published in the Federal Register. Lawmakers have used the statute in 2017 to undo more than a dozen rules issued by Obama-era regulators.

Isaac Boltansky, an analyst at Compass Research & Trading, said there will be an aggressive lobbying effort from the financial services industry, and likely other industries, for Congress to challenge the rule.

“Now it becomes a question of public perception and vote counting,” Boltansky said in an email to Bloomberg BNA. “If the rule is painted as a giveaway to trial attorneys by an overbearing federal regulator, then the odds of reversal are high. If the rule is seen as a valiant step to protect consumer rights, then getting a majority in the Senate is unlikely.”

Margins are slim in the Senate, where Republicans hold 52 seats. Senate Republicans circulated a resolution in early 2017 to roll back the CFPB’s prepaid card rule, but never brought the measure to a floor vote.

It’s uncertain whether Republicans will be able to nix the arbitration rule given the potential political framing and a full plate of other congressional priorities, including changes to health-care and tax law, as well as raising the debt ceiling and funding the government.

A packed legislative calendar this summer might make it difficult to find floor time to consider the arbitration rule within the 60-day window, said Quyen Truong, a Washington-based partner at Stroock & Stroock & Lavan, who served as assistant director and deputy general counsel at the CFPB.

Campaign Fodder?

If a move to nullify the arbitration rule is successful, the CRA would prevent the CFPB from adopting a “substantially similar” rule in the future.

Morris said there is a good chance that the rule will be overturned using the CRA. “If not, there will be litigation challenging the basis for the rule, and we’ll have to see how that plays out,” she said.

The adoption of the arbitration rule likely will renew outcries for the president to remove Cordray as director, Truong said. Republican lawmakers, including Hensarling, have called on Trump to remove Cordray, who has led the independent agency since its creation under the Dodd-Frank Act.

Cordray’s five-year term as director ends in mid-2018, but he may exit sooner to run for governor of Ohio.

Getting fired by Trump could potentially boost Cordray’s prospects as a candidate, said Jaret Seiberg, an analyst at Cowen and Co.

“If the agency failed to finalize this rule, he could have been criticized by the left for not acting,” Seiberg wrote in a research note. “Now he either can claim credit for acting or attack the GOP if it blocks the rule.”

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To contact the editor responsible for this story: Michael Ferullo at

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