October 30, 2017
U.S. Senate Disapproves Consumer Financial Protection Bureau's Rule
U.S. Senate disapproves Consumer Financial Protection Bureau's rule prohibiting arbitration clauses in consumer contracts with Vice President Pence casting the tie-breaking vote.

Earlier this year, the Consumer Financial Protection Bureau ("CFPB") culminated its efforts to address mandatory arbitration clauses in consumer contracts by issuing a rule that banned the use of those clauses. Many consumer financial products, like home mortgage loans and credit cards, have pre-dispute arbitration clauses. The clauses provide that, should a dispute arise regarding the products, that dispute must be resolved in arbitration instead of in the court system. Those clauses also sometimes include a provision the consumer agrees that he or she will not take part in any class action that may be filed regarding the products. In the past, courts have wrangled with the issue of whether these so-called "class action waivers" were permissible as well as whether consumers can be forced to resolve disputes in arbitration instead of filing a lawsuit to resolve those disputes in the courts.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law on July 21, 2010, included a directive to the CFPB to study the use of mandatory arbitration clauses in consumer financial products. The CFPB reported its study revealed that more than half of all credit card debt in the U.S. involved accounts that contained arbitration clauses and that approximately 44 percent of insured deposits were in accounts containing such clauses. However, the study showed approximately 75 percent of consumers were unaware whether their accounts contained an arbitration clause. Ultimately, the CFPB concluded arbitration clauses were "bad for consumers" based on its belief they denied consumers their day in court and removed barriers to wrongdoing.

As a result of its study, the CFPB's rule banned the use of arbitration clauses in contracts relating to consumer financial products. The rule was met with criticism, especially from the U.S. Chamber of Commerce, which characterized the rule as an "Agency Goes Rogue on Arbitration Rule." You can find a copy of the U.S. Chamber's article here.

On October 24, 2017, the U.S. Senate voted to pass H.J. Res. 111, which disapproves the arbitration rule and renders it as having no force or effect. The vote in the Senate resulted in a tie, setting up Vice President Pence to cast the tie-breaking vote to pass the resolution and disapprove the rule. The resolution, which the U.S. House of Representatives previously had passed, now goes to President Trump for his approval. You can find a copy of the resolution here.

If you have any questions, please contact us.

Nicholas P. Mooney II
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