By Jeff Bater
The Consumer Financial Protection Bureau could defy Republican rule busters and issue final regulations targeting payday lenders and mandatory arbitration clauses before its director leaves office.
Richard Cordray’s five-year term as director ends in mid-2018, but he may exit sooner to run for governor of Ohio.
His impending departure could prove to be impetus for action on those two rules, which would amount to a last hurrah of sorts for the embattled agency as an aggressive policy initiator amid GOP efforts underway to neutralize its power.
“If Cordray decides to run for governor of Ohio, which is highly speculated, both these items could be pretty significant legacy items for him,” Craig Saperstein, a lawyer at Pillsbury Winthrop Shaw Pittman, said at a financial services conference June 22 in Washington.
The risk to any rule is a challenge by Republicans using the Congressional Review Act, a 1996 law that allows lawmakers to repeal a federal regulation and requires only a simple majority vote. The Trump administration and Congress used the CRA to rescind 14 Obama-era rules before the window closed in May on the previous administration’s regulatory work.
Republicans are more likely to successfully stop the arbitration rule using the CRA given “deeply committed and deeply unified” industry opposition to class-action lawsuits, said Isaac Boltansky, an analyst at Compass Point Research & Trading. Under a CFPB proposal in May 2016, banks and other financial companies would no longer be able to use arbitration clauses to prevent class-action lawsuits by consumers.
Alan Kaplinsky, a lawyer for Ballard Spahr LLP, said in a post on his firm’s website that if Cordray were to issue a final arbitration rule at the end of July, it would become effective on the 211th day after it is published in the Federal Register — well within his remaining term. A CRA override would work as long as Senate Republicans vote as a bloc.
“With a 52-48 voting margin in the Senate, the Republicans can only afford to lose two votes and still pass the override resolution,” Kaplinsky said.
Cordray’s early resignation to run for governor as a Democrat would allow President Donald Trump to name a successor at the CFPB. That person could delay the rule’s effective date and take steps to repeal it, Kaplinsky said.
More challenging would be an override of a payday rule, which the CFPB proposed in June 2016 as a way to relieve those borrowers seeking a short-term cash fix that wind up saddled with loans they cannot afford and become mired in long-term debt.
Noting strict regulations at the state level against small-dollar lending, Saperstein said, “I think people will see those and say, ‘Why can’t we do this at the federal level?’ ”
Not everyone is convinced the CFPB will issue either final rule, given Republicans’ post-election leverage.
“There’s no way the rules Cordray wants would survive the Congressional Review Act,” said Ronald L. Rubin, a former CFPB enforcement attorney, now a writer whose pieces focus on the bureau. “Why would he pass something that’s never going to become a rule, and would just give the administration a reason to fire him?”
On the other hand, Gerry Sachs, of counsel at Paul Hastings LLP, said there’s a limited downside for Cordray if he finalizes either the payday lending rule or the arbitration rule before leaving the bureau.
“If he publishes these rules and Congress attempts to use the Congressional Review Act, it may or may not work,” Sachs said. “But if it does work and they’re rolled back, it’s really no different than should he not publish them. That’s because the next director of the CFPB is not expected to put out many rules, especially if he adheres to President Trump’s two-for-one rule regarding regulations.”
Sachs added that if a CRA challenge is successful, “it doesn’t necessarily put consumers in any different position than they would have been in if Rich Cordray has done nothing.”
Aside from arbitration and payday lending, the CFPB has other rulemakings in the pipeline, including debt collection. Cordray signaled in early June that the CFPB intends moving forward with plans to regulate debt collectors. The bureau last year outlined proposals under consideration that would apply to third-party debt collectors and debt buyers, but has not formally proposed a rule.
Sachs thinks if Cordray stays at the bureau for the rest of his term, the CFPB could also propose a rule on debt collection. A proposal in that space would be the next step for the bureau, which announced a regulatory outline in July 2016 that would overhaul the debt collection market by capping collector contact attempts and by helping to ensure that companies collect the correct debt.
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