U.S. Senate Votes to Block CFPB Arbitration Rule

The U.S. Senate voted on a resolution to overturn the Consumer Financial Protection Bureau’s (“CFPB”) arbitration rule. Republican senators Lindsey Graham of South Carolina and John Kennedy of Louisiana opposed the resolution, and Vice President Mike Pence cast the deciding vote in favor of striking down the rule to break a 50-50 tie.

The CFPB arbitration rule restricts mandatory arbitration clauses in certain consumer financial contracts. The rule has been subject to criticism from various sources who allege that the rule will greatly increase the number of class-action lawsuits, thereby benefiting the plaintiff’s bar and increasing costs to consumers. The U.S. Department of the Treasury recently released a report criticizing the rule and the CFPB’s review process in adopting the rule.

In July, Republicans in the House of Representatives and the Senate introduced joint resolutions to nullify the rule using the authority granted under the Congressional Review Act. Under the Congressional Review Act, a rule can be repealed by simple majority votes in both the House and the Senate within 60 legislative days of its finalization. The House promptly voted to block the rule in July and, by a narrow margin, the Senate has now voted to do the same. The resolution now will be put in front of President Trump, who is expected to sign it into law and block the rule from taking effect.

Lofchie Comment: The need for Congress and the President to undo the actions of the CFPB illustrates what an odd regulatory structure Dodd-Frank created in establishing the CFPB. The agency operates independently of, and now in opposition to, both the Executive and Legislative branches of government. While there are undoubtedly those who favor the rulemakings of the CFPB on a policy basis, that does not change the fact that the CFPB is, from a Constitutional standpoint, operationally unsound. Should a Democrat win in the next Presidential election, presumably the CFPB would be headed by a Republican and appointed by President Trump. Undoubtedly, such an appointee would seek to frustrate the goals of the next President. That is simply not the way that the government should work.