Next Steps for Consumer Financial Services Providers Following Override of CFPB Arbitration Rule
McGlinchey Consumer Financial Services Alert
As has been widely reported, on the evening of Tuesday, October 24, the Senate acted pursuant to the Congressional Review Act (CRA) to override the CFPB’s arbitration rule. The House had previously passed the CRA resolution, and news sources have reported that the President will sign it, meaning that the arbitration rule will never take effect. Importantly, because the CRA prevents an agency whose rule was overridden by Congress from promulgating a substantially similar rule in the absence of a Congressional authorization to do so, thus the CFPB is precluded from regulating arbitration agreements that apply to consumer financial products and services by rule. Accordingly, the enactment of the CRA resolution means consumer financial product and service providers can therefore now stop considering how to comply with the rule and whether to delete or revise their arbitration agreements because of the rule.
Consumer financial service product providers are advised, however, that it remains possible for the CFPB to invalidate individual arbitration agreements and practices through its enforcement authority on UDAAP grounds. Similarly, state attorneys general and private litigants could also allege that a particular arbitration agreement or actual arbitration was unenforceable because it is unfair, deceptive, or unconscionable. Because of those possibilities, courts may have more to say about arbitration in the future.
Please reach out to the authors of this alert or another member of the firm’s Consumer Financial Services Compliance or Consumer Financial Services Litigation teams with any questions regarding this alert.