Proposed CFPB Arbitration Rule Faces Multiple Obstacles

ADR Regulation

By Alan S. KaplinskyJanuary 2017 | Print

Among its post-election analysis articles, the Wall Street Journal reported that the Consumer Financial Protection Bureau is pushing to finalize its arbitration rule before Donald Trump’s inauguration on Jan. 20. Andrew Ackerman, Financial Regulators Scramble to Complete Postcrisis Rules, Wall Street Journal (Nov. 21)(available at

The proposal would generally prohibit providers of consumer financial products or services from using a pre-dispute arbitration agreement to block a consumer from filing or participating in a class action lawsuit with respect to the consumer financial product or service.

The comment period on the proposed rule closed on Aug. 22, 2016. See “Comments Closed on CFPB’s Consumer Arbitration Rulemaking; Wait Begins for a Class-Action Ban,” 34 Alternatives 142 (October 2016)(available at

The WSJ article suggested that the CFPB may also attempt to finalize its rule on payday, title, and high-cost installment loans by Jan. 20. The possibility of the CFPB accomplishing that, however, seems more remote given the complexity of the proposal, the comment period for which closed on Oct. 7, 2016, and for which the CFPB received about one million comments. Jeremy T. Rosenblum, “CFPB receives unprecedented level of comments on payday, title and high-cost installment loan proposal,” CFPB Monitor (Oct. 11, 2016)(available at

If the CFPB were to issue a final arbitration rule—or any other new final rule—by the inauguration, it could find its efforts thwarted by Congress. A relatively obscure law, the Congressional Review Act, at 5 U.S.C. §§801-808 (and referred to below as the CRA), establishes a special set of procedures through which Congress, under certain circumstances, can nullify final regulations issued by a federal agency.

Indeed, according to an article issued by the Congressional Research Service, the CRA could potentially be used to overturn final CFPB rules issued after mid-May 2016, which would include the yet-to-be-released final arbitration rule, as well as the CFPB’s final prepaid card rule, which was issued on Oct. 5, 2016. See Christopher M. Davis and Richard S. Beth, Agency Final Rules Submitted After May 16, 2016, May Be Subject to Disapproval in 2017 Under the Congressional Review Act, CRS Insight (Feb. 4, 2016)(available for download at


The CRA was enacted in 1996 as part of the Small Business Regulatory Enforcement Fairness Act, or SBREFA. The CFPB has convened SBREFA review panels in connection with several of its rulemakings, including its arbitration proposal. Under the CRA, an agency must submit a final rule to Congress and the Government Accountability Office before the rule can take effect.

Upon receipt of the rule by Congress, members of Congress have a specified time period during which they can submit and take action on a joint resolution disapproving the rule. If the resolution is passed by both the House and Senate, it is sent to the president for signature or veto.

Most significantly, the CRA’s special procedures establish a process under which a joint resolution of disapproval cannot be filibustered in the Senate and can be passed with only a simple majority.

The result would be the enactment of a CRA joint resolution disapproving a final rule which prevents the rule from taking effect. If a rule already has become effective, it no longer continues in effect and “shall be treated as though such rule had never taken effect.”

The joint resolution’s enactment would also bar an agency from reissuing the rule “in substantially the same form” or issuing a “new rule that is substantially the same” as the disapproved rule “unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”

A Congressional Research Service report on the CRA states that the law does not define the meaning or scope of “substantially the same”—that is, it doesn’t explain the criteria that should be considered in determining if a reissued or new rule is “substantially the same,” or who would make such a determination. Maeve P. Carey, Alissa M. Dolan & Christopher M. Davis, “The Congressional Review Act: Frequently Asked Questions,” Congressional Research Service Report (Nov. 17, 2016)(available at

The CRA also provides that “[n]o determination, finding, action, or omission under this chapter shall be subject to judicial review.”

The Congressional Research Service report indicates that two federal appeals courts and several federal district courts have determined that this CRA provision prohibits judicial review of any question arising under the CRA, while one federal district court ruled that it could review a claim based on noncompliance with the CRA.

According to the Congressional Research Service, the CRA procedure has only successfully overturned one agency final rule—a 2000 OSHA workplace-related rule. The reason most commonly cited for why only one rule has been successfully overturned using the CRA over the 20 years since its enactment is that a de facto supermajority vote is required to enact a CRA resolution of disapproval.

While all congressional votes related to such a resolution can be simple majority votes, if the president vetoes the resolution, a two-thirds majority of both houses of Congress would be necessary to override the veto. And it is expected that a president will veto a joint resolution attempting to strike down a rule issued by his or her own administration. (The Congressional Research Service indicates that in the 114th Congress (2015-2016), President Obama has vetoed four CRA disapproval resolutions.)

November’s election of Donald Trump as president presumably makes it unlikely that a CRA joint resolution disapproving a final CFPB arbitration rule would face a presidential veto. Having retained control of the House and Senate, Republicans would therefore be able to use the CRA to nullify a final CFPB arbitration rule through a simple majority vote, and not have to overcome the hurdle of a supermajority vote.


In addition to the CRA, a CFPB rulemaking could face another potential roadblock should the D.C. Circuit’s decision in PHH Corp. v. CFPB take effect. That potential roadblock is Executive Order 12866 (available at, which requires a federal agency that is not considered an “independent regulatory agency” to submit regulations that qualify as a “significant regulatory action” to the Office of Information and Regulatory Affairs, or OIRA, within the Office of Management and Budget for review before publication in the Federal Register.

The PHH opinion, No. 15-1177 (D.C. Cir. Oct. 11, 2016)(available at, declared the CFPB’s structure unconstitutional, noting that the CFPB’s “concentration of enormous executive power in a single, unaccountable, unchecked Director not only departs from settled historical practice, but also poses a far greater risk of arbitrary decisionmaking and abuse of power.”

To remedy the constitutional defect, the court struck the provision of the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act that allows the president to remove the CFPB director only for cause, so that the president “now has the power to supervise and direct the Director of the CFPB, and may remove the Director at will at anytime.”

As the court stated, the consequence of this structural change is that the CFPB is no longer an “independent agency,” and instead “now will operate as an executive agency.”

Assuming the CFPB would no longer be considered an independent regulatory agency for purposes of Executive Order 12866 should PHH Corp. v. CFPB take effect, rules not yet finalized, such as its arbitration proposal, would be subject to OIRA review.

Such review includes an evaluation of an agency’s analysis of a regulation’s anticipated costs and benefits and its determination that the anticipated benefits justify the anticipated costs. See Alan S. Kaplinsky, “What the D.C. Circuit’s PHH decision means for CFPB rulemaking,” CFPB Monitor (Oct. 18, 2016)(available at

The CFPB could even face challenges to its final rules, including those that have already become effective, on the basis that such rules were not, but should have been, reviewed by OIRA.

At press time, the PHH Corp. v. CFPB case is the subject of a request for rehearing en banc by the CFPB. See Barbara S. Mishkin, “Members of Congress, consumer advocates file amicus briefs supporting CFPB’s petition for rehearing en banc in PHH case,” CFPB Monitor (Dec. 1, 2016)(available at

There are yet other ways in which the arbitration rulemaking could be derailed.

For example, President Trump could appoint a new CFPB director if CFPB Director Richard Cordray were to resign or be removed by President Trump for cause or without cause. (According to one legal commentator, the new President could remove Director Cordray without cause even while the PHH case is still pending, see Barbara S. Mishkin, “How does the PHH case impact presidential authority to remove Director Cordray?” CFPB Monitor (Dec. 1, 2016) (available at

If there is a new director, he or she could decide not to finalize the rule (if Director Cordray has not finalized the rule before leaving office) or, consistent with the requirements of the Administrative Procedure Act, delay the effective date, change, or repeal the rule.

In addition, Congress could enact legislation repealing any final arbitration rule or Dodd-Frank Section 1038, which authorized the CFPB to issue an arbitration rule under certain circumstances. It also could enact other legislation to reform the CFPB by changing its governance structure from a sole director to a five-member commission and/or subjecting the CFPB to the Congressional appropriations process.

Finally, quite apart from the outcome of the election and the PHH case, it seems likely that any final arbitration rule will be challenged in court on the basis that, among other shortcomings, it runs afoul of Section 1038 of Dodd-Frank and the Administrative Procedure Act. Alan S. Kaplinsky and Mark J. Levin, “Trade groups comment on CFPB arbitration proposal,” CFPB Monitor (Aug. 23, 2016 (available at

In light of the potential ways discussed above for the arbitration rule to be derailed, the odds at this point seem to be leaning heavily in favor of those who, like your author, have steadfastly opposed the rulemaking.

Overhaul Canceled? Or Ready for Reversal?

The issue: The intersection of Election 2016 and the Consumer Financial Protection Bureau’s proposed arbitration regulation.

The status: It doesn’t really matter. Regardless of whether the CFPB has delivered its promised final rule by the time you read this, or acts before the Jan. 20 inauguration, the avenues to halting or dismantling restrictions on pre-dispute arbitration and class waivers are plentiful.

The future: Even if the CFPB’s final regulation emerges and becomes effective, a rescission under ‘a relatively obscure’ law is low-hanging fruit for the new Congress. Or executive action. And that’s before you even get to court challenges.


The author, a partner at Ballard Spahr LLP in Philadelphia, is chairman of the firm’s Consumer Financial Services Group, which has more than 115 attorneys. Kaplinsky and the group are frequent participants in federal and state arbitration litigation matters, and he has written and spoken extensively on arbitration. At the invitation of the Consumer Financial Protection Bureau, Kaplinsky has testified at three CFPB field hearings related to the CFPB’s arbitration rulemaking. The group produces a blog,, which focuses on CFPB activities, and from which this article is updated and expanded. The original blog post is available at

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