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Senate Republicans aren’t wasting any time in trying to negate the CFPB’s rule barring the use of mandatory arbitration to block class actions by consumers, even as federal regulators lay the groundwork for their own attempts to delay or halt the rule.
An effort is already underway to scotch the rule using the Congressional Review Act, a statute that allows Congress to overturn executive branch actions, and a resolution could be unveiled as soon as July 19, Senate Banking Chairman Mike Crapo (R-Idaho) told Bloomberg BNA in a brief interview.
The Consumer Financial Protection Bureau’s rule is scheduled for official federal publication July 19, which would start the clock on both the CRA action and a potential effort to overturn the rule by the Financial Stability Oversight Council, a group of regulators.
Crapo has garnered support for the resolution from other Senate Republicans, including fellow Banking Committee Sens. Tom Cotton (R-Ark.) and Tim Scott (R-S.C.).
Under the CRA, the disapproval resolution could pass the Senate with a mere simple majority, or a tie broken by Vice President Mike Pence, but only if moved within 60 days from the rule’s official publication.
A similar resolution is being crafted in the House, where Financial Services Committee Chairman Jeb Hensarling (R-Texas) has backed CRA use. “As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act,” he said earlier in July.
The Dodd-Frank Act also empowers the Financial Stability Oversight Council, a group of 10 that includes heads of federal financial regulators and an independent insurance expert, to overturn CFPB rules with a two-thirds vote.
To overturn a rule, the FSOC first must determine that it would “put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk.”
Acting Comptroller of the Currency Keith Noreika foreshadowed a possible use of the “FSOC veto” when he wrote CFPB Director Richard Cordray asking for the data the bureau used in formulating the rule, citing his “statutory safety and soundness obligations.”
The CFPB will provide the data about the rule, which applies to credit cards, payday loans, and other consumer financial products, but not to entities regulated by the Securities and Exchange Commission, Cordray said in a July 18 letter.
Cordray also reiterated he fails to see “any plausible basis” for Noreika’s claim the rule could affect the safety and soundness of the banking system by increasing litigation costs. “I question why it would be appropriate to distort the FSOC process to review a claim that is so plainly frivolous,” he said.
Noreika had asked the CFPB to delay publication until OCC staff analyzes the data. But Cordray, in his July 18 letter, said the CFPB sent the regulation for publication before Noreika raised his issues with it on July 10, which was the day the rule was finalized.
“Consenting to share the data is important progress,” Noreika said in a July 18 statement. “I look forward to working with the OCC staff to conduct an independent review of the data and analysis in a timely manner to answer my prudential concerns regarding what impact the final rule may have on the federal banking system.”
If the OCC or another regulatory head objects to the CFPB’s rule, it has 10 days from the rule’s publication to petition the Treasury secretary, who can then stay the rule for 90 days. The FSOC has that 90-day window to set aside the regulation, which it must do with two-thirds support.
With 10 members, seven votes would be required to set aside the rule. Five appointees from President Barack Obama still remain on the council: Federal Reserve Chair Janet Yellen, Federal Deposit Insurance Corporation Chairman Martin Gruenberg, Federal Housing Finance Agency Chairman Mel Watt, Cordray, and insurance expert S. Roy Woodall Jr.
That path has also never been tried before, and Dodd-Frank required the FSOC to “prescribe procedural rules” on how it would veto regulators, which it never did.
“The FSOC veto is subject to some legal procedures and judicial review, and I don’t think it has a chance in hell of surviving such review,” Adam Levitin, a professor at Georgetown University Law Center specializing in financial regulation, said in a commentary on the CFPB rule.
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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