Big Business wants to kill CFPB’s anti-arbitration rule. Here’s the game plan.

October 7, 2015

(Reuters) – What the U.S. Supreme Court took away from consumers in its pro-arbitration decisions in AT&T Mobility v. Concepcion and American Express v. Italian Colors, the Consumer Financial Protection Board intends to give back.

On Wednesday, the CFPB announced a proposal to prohibit financial services companies from imposing mandatory arbitration clauses that bar consumer class actions. The proposed rule, which followed the agency’s release last March of an arbitration study mandated in the 2010 Dodd-Frank financial reform law, would restore consumers’ right to band together to sue banks, credit card companies, payday lenders and other financial services businesses. Consumer advocates such as Paul Bland at Public Justice quite rightly greeted the CFPB’s proposal as an opportunity to regain the ground lost to mandatory arbitration clauses.

But as Bland himself told me in an interview Wednesday morning, the proposal is only another preliminary step toward restoring consumers’ right to bring class actions. The CFPB now has to give small businesses a chance to offer their view of the proposed rule in closed-door meetings with a selected panel of companies. After the agency releases a public report on the small business review, it will seek public comment on a formally proposed rule. Only when the notice-and-comment period is complete can it issue a formal proposed rule for restricting class action waivers. At best, Bland said, a final rule from the CFPB is probably months away.

That’s going to give business groups plenty of time to figure out ways – politically and through litigation – to try to stop the CFPB rule from ever taking effect. “All options are on the table,” said Matthew Webb, senior VP of legal reform policy for the U.S. Chamber of Commerce’s Institute for Legal Reform. “Class action lawyers shouldn’t start popping the corks on their champagne,” added Andrew Pincus of Mayer Brown, who posted on the proposal at ILR’s website. “There is a long road ahead particularly as consumers learn that their ability to redress real injuries has been sacrificed for the nonexistent ‘benefits’ of a broken class action system.”

Politically, pressure will be on the CFPB to get its rule implemented before the 2016 elections. It’s no secret that Republicans are no fans of Dodd-Frank in general and of the CFPB in particular. There is already a bill in the House of Representatives calling on the CFPB to re-do the study underpinning its proposed new rule (even though, by any objective measure, it is far and away the most sweeping analysis ever conducted of the relative benefits to consumers of arbitration and class actions). Or CFPB detractors could also try to rescind Dodd-Frank provisions authorizing the new rule through riders on appropriations bills, according to Alan Kaplinsky of Ballard Spahr, who has been one of the leading voices against the CFPB’s arbitration study.

There is also sure to be litigation challenging any CFPB final rule prohibiting class action waivers in arbitration clauses, just as business groups have challenged – with some notable successes – other Dodd-Frank mandated rules. I don’t see how detractors can argue that the CFPB failed to conduct the pre-rule investigation Dodd-Frank called for. But Kaplinsky said a suit accusing the agency of arbitrary and capricious rulemaking could argue that the CFPB reached the wrong conclusion about what its data actually showed.

Another prospective argument could be that the CFPB cut off its study too soon, before collecting data on its own ability to deliver relief to consumers wronged by financial institutions. Under that argument, the CFPB study set up a false dichotomy between class actions and individual consumer arbitration because it didn’t wait to evaluate its impact.

Even if the CFPB manages to fend off Congressional Republicans and implement a final rule restricting arbitration clauses, it’s unlikely the inevitable litigation over the rule will be concluded before a new Congress and president take office in 2017. If Republicans end up controlling Congress and the presidency, the CFPB bar on mandatory arbitration – which the business lobby considers to be one of the class action bar’s prime accomplishments during the Obama administration – could be doomed.

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