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Massachusetts AG Leads AG Coalition Urging Senate to Oppose Joint Resolution to Set Aside CFPB Arbitration Rule
On July 28, Massachusetts Attorney General Maura Healey, along with 20 other state attorneys general, issued a letter to Senate Majority leader Mitch McConnell and Minority Leader Charles Schumer, urging Senate leaders to oppose S.J.Res. 47—a joint resolution that would set aside the CFPB’s arbitration rule. As previously discussed in InfoBytes, on July 25, the House exercised its authority under the Congressional Review Act to pass a measure to strike down the rule. The coalition of state attorneys general support the CFPB’s proposed rule, which prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. The letter asserts that most customers lack the time and resources to enter into arbitration and that “[t]he CFPB’s Arbitration Rule would deliver essential relief to consumers, hold financial services companies accountable for their misconduct, and provide ordinary consumers with meaningful access to the civil justice system.”
In 2016, AG Healey led a group of 17 state attorneys general who offered support to the CFPB in favor of the Bureau’s proposed rule and asserted a need for regulations that would prohibit such clauses outright. (See previous InfoBytes coverage here.)
House Votes to Repeal CFPB Arbitration Rule
On July 25, the House voted along party lines to strike down the CFPB’s final arbitration rule by a vote of 231 to 190, exercising its authority under the Congressional Review Act to overturn a new agency rule within 60 days of its publication. H.J. Res. 111, sponsored by Rep. Keith Rothfus (R-Pa.), invalidates the recently adopted rule that prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. A similar measure was introduced by Senate Banking Committee Chairman Mike Crapo (R-Idaho). A date for the Senate vote has not yet been set.
American Bankers Association. President and CEO Rob Nichols applauded the action: “Today’s action is critical to ensuring the Bureau doesn’t provide trial lawyers with a regulatory windfall at consumers’ expense. In class-action lawsuits, the spoils go overwhelmingly—and sometimes exclusively—to a small group of highly motivated trial lawyers who specialize in filing a large volume of often frivolous litigation.”
Consumer Bankers Association. President and CEO Richard Hunt supported the action: “Consumers' access to arbitration, which has long provided a faster, more cost-effective, and higher recovery alternative to class action lawsuits, should not be undermined by a harmful rule resulting from an incomplete study by the CFPB. The Bureau's own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit.”
U.S. Chamber of Commerce. In a key vote letter sent to the House before Tuesday’s vote, the Chamber of Commerce stated, “Even though this regulation is directed at financial firms, the CFPB’s rule impacts businesses of all types that the Bureau believes touch consumer finance – even mobile telephone service providers and website operators.” Furthermore, the CFPB “decided to issue a regulation that interferes with freedom of contract, imposes new burdensome regulations, hurts consumers, and rewards class action lawyers. Congress should assert its prerogatives and overturn this illegitimate rule.”
Buckley Sandler Insights: CFPB Updates Rulemaking Agenda
On July 20, the CFPB released its Spring 2017 rulemaking agenda. The agenda was last updated in Fall 2016. The summer release date, and the fact that certain deadlines listed in the updated agenda have already passed, indicates that the agenda’s release may have been delayed after the CFPB drafted it. The following aspects of the updated agenda are particularly noteworthy:
- Regulation Reviews: The Bureau plans to begin “the first in a series of reviews of existing regulations that we inherited from other agencies through the transfer of authorities under the Dodd-Frank Act,” noting that “other federal financial services regulators have engaged in these types of reviews over time, and believe that such an initiative would be a natural complement to our work to facilitate implementation of new regulations.” The Bureau has formed “an internal task force to coordinate and deepen the agency’s focus on concerns about regulatory burdens and projects to identify and reduce unwarranted regulatory burdens….” The agenda lists “pre-rule activities” as continuing through September 2017. Separately, the Bureau notes its ongoing assessments of the effectiveness of the Mortgage Servicing Rules, the Ability-to-Repay/Qualified Mortgage Rule, and the Remittance Transfer Rule pursuant to the Dodd-Frank Act’s five-year lookback provision.
- Small Dollar Lending: The Bureau reports that it received more than one million comments on its June 2016 proposed rule to impose ability-to-repay requirements for payday, vehicle title, and similar installment loans. The Bureau states that it “continue[s] to believe that the concerns articulated in the [proposed rule] are substantial” but does not provide an expected release date for a final rule.
- “Larger Participants” in Installment Lending: The agenda lists September 2017 as the expected release date for “a proposed rule that would define non-bank ‘larger participants’ in the market for personal loans, including consumer installment loans and vehicle title loans.” Designation as a larger participant brings a non-bank entity within the CFPB’s supervisory jurisdiction. The agenda indicates that a companion rule requiring payday, vehicle title lenders, and other non-bank entities to register with the Bureau is also underway, as noted below.
- Debt Collection: In July 2016, the Bureau released an outline of proposals under consideration for debt collection and convened a panel under the Small Business Regulatory Enforcement Fairness Act in conjunction with the Office of Management and Budget and the Small Business Administration’s Chief Counsel for Advocacy to consult with representatives of small businesses that might be affected by the rulemaking. The Bureau notes that, “[b]uilding on feedback received through [that] panel, we have decided to issue a proposed rule later in 2017 concerning debt collectors’ communications practices and consumer disclosures.” The agenda states that a proposed rule is expected in September 2017. The Bureau also states that, in a departure from the July 2016 outline of proposals, the Bureau “intend[s] to follow up separately at a later time about concerns regarding information flows between creditors and FDCPA collectors and about potential rules to govern creditors that collect their own debts.”
- Overdrafts: The Bureau states that the current opt-in regime “produces substantially different opt-in rates across different depository institutions” and that its “supervisory and enforcement work indicates that some institutions are aggressively steering consumers to opt in.” The Bureau reports that it is “engaged in consumer testing of revised opt-in forms and considering whether other regulatory changes may be warranted to enhance consumer decision making.” The agenda lists “pre-rule activities” as continuing through June 2017.
- Small Business Lending: The agenda lists “pre-rule activities” on the implementation of the small business data reporting provisions of the Dodd-Frank Act as continuing through June 2017. Specifically, the agenda states that, at this juncture, the CFPB “is focusing on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.”
- HMDA & ECOA Amendments: The agenda lists October 2017 as the expected release date for the April 2017 proposed ECOA amendments to clarify requirements for collecting information on ethnicity, race, and sex, but does not list an expected release date for finalization of the April 2017 proposed technical corrections to the 2015 HMDA rule, or the July 2017 proposed amendments to the 2015 HMDA rule’s requirements for reporting home equity lines of credit.
- TRID/Know Before You Owe Amendments: The agenda lists March 2018 as the expected release date for finalization of the July 2017 proposed rule addressing the “black hole” issue, which is discussed in our special alert.
- Mortgage Servicing Amendments: The Bureau states that it expects to issue a proposal in September 2017 “to make one or more substantive changes to the rule in response to . . . concerns” raised by the industry.
- Arbitration: Interestingly, the agenda states that the Bureau’s final rule on mandatory arbitration clauses, which was released this month to significant controversy, was not expected until August.
- Non-Bank Registration: The Bureau states that it is “considering whether rules to require registration of [installment lenders] or other non-depository lenders would facilitate supervision, as has been suggested to us by both consumer advocates and industry groups.”
- Prepaid Cards: The agenda does not provide an expected release date for finalization of the June 2017 proposed amendments addressing error resolution and limitations on liability, application of the rule’s credit-related provisions to digital wallets, and other issues.
- Credit Card Agreement Submission: The Bureau is “considering rules to modernize our database of credit card agreements to reduce burden on issuers that submit credit card agreements to us and make the database more useful for consumers and the general public.” The agenda lists “pre-rule activities” as continuing through October 2017.
Senate and House Committees File Separate Resolutions Disapproving of CFPB Arbitration Rule
On July 20, the Senate Committee on Banking, Housing and Urban Affairs and the House Financial Services Committee each announced Congressional Review Act Joint Resolutions of Disapproval against the CFPB’s Arbitration Agreements final rule issued July 10. In a press release issued by the Senate Committee, 24 Republican senators—including Chairman Mike Crapo (R-Idaho)—expressed concern that the anti-arbitration measure will discourage cost-effective dispute resolution and push consumers into class action lawsuits causing more harm than good. House Republicans outlined similar concerns in a press release issued the same day. H.J. Res. 111, co-sponsored by all 34 Republican members of the House Financial Services Committee, will seek to nullify the rule, which they believe “punish[es] consumers with decreased access to financial products, increased costs for such products, or both.”
The Congressional Review Act allows Congress to overturn agency rules by a simple majority if moved within 60 days from the rule’s publication.
OCC Acting Comptroller Reiterates Request for CFPB Arbitration Rule Data
On July 17, OCC Acting Comptroller Keith Noreika delivered a letter to the CFPB reiterating his request to review the supporting data used to develop the Bureau’s final arbitration rule prohibiting the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. While the CFPB issued assurances that the final rule would not impact the safety or soundness of the financial banking system, Noreika argued that because the Bureau is not a “safety and soundness prudential regulator,” the OCC, as the prudential regulator for the federal banking system, should be allowed to review the underlying data to address potential concerns under Section 1023 in Title X of the Dodd-Frank Act. In response, CFPB Director Richard Cordray stated his team is in the process of gathering the requested data but questioned the “plausible basis” for Noreika’s claim that the final arbitration rule could pose a safety and soundness issue.
Special Alert: CFPB Issues Arbitration Rule Banning Future Use of Mandatory Arbitration Clauses
On July 10, the Consumer Financial Protection Bureau (CFPB) issued its Arbitration Agreements Rule (Rule), which prohibits the use of mandatory pre-dispute arbitration clauses in certain contracts for consumer financial products and services. The Rule is a product of the CFPB’s rulemaking process, which received more than 110,000 comments on its May 2016 proposed arbitration rule, and the CFPB’s March 2015 Arbitration Study. The Rule is set to take effect 60 days after publication in the Federal Register, and will generally apply to contracts entered into on or after the 241st day after publication in the Federal Register. The Rule has the potential to profoundly impact the way disputes concerning consumer financial products and services are resolved. Thus, today’s action by the CFPB will likely lead to an effort pursuant to the Congressional Review Act to overturn the Rule before it becomes effective.
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Click here to read full special alert.If you have questions about the rule or other related issues, please visit our Consumer Financial Protection Bureau practice page, or contact a Buckley Sandler attorney with whom you have worked in the past.
Special Alert: California Supreme Court Invalidates Widely Used Arbitration Provisions and Curtails the Scope of Proposition 64
On April 6, the California Supreme Court published its opinion in McGill v. Citibank, N.A., finding unenforceable arbitration agreements that purport to waive claims for public injunctive relief brought under California’s Consumer Legal Remedies Act (CLRA), Civ. Civ. Code, § 1750 et seq., its Unfair Competition Law (UCL)(Bus. & Prof. Code, § 17200), and its false advertising law (id., § 17500 et seq.). In so holding, the court resisted arguments that the Federal Arbitration Act (FAA) preempts California state law, notwithstanding the United States Supreme Court’s landmark holding in AT&T Mobility v. Concepcion (Concepcion). In a second significant holding, the court materially limited the effect of Proposition 64 on claims brought under the UCL, finding that actions for public injunctive relief need not satisfy California requirements for class certification. The court’s decision presents significant questions as to the validity of widely used consumer arbitration clauses, creates the prospect of considerable future litigation regarding the scope of preemption under the FAA, and narrows the effect of Proposition 64 on future litigation under the UCL.
Click here to read full special alert***
If you have questions about the court’s holding or other related issues, visit our Complex Civil Litigation and Class Actions practices for more information, or contact a Buckley Sandler attorney with whom you have worked in the past.
Second Circuit Remands Case to District Court, Rules Web Provider Failed to Show Plaintiff Agreed to Arbitration
Recently, the Court of Appeals for the Second Circuit vacated in part a district court ruling, specifically its decision to dismiss a plaintiff’s putative-class action claim on the grounds that the plaintiff failed to plausibly state a claim for relief. Nicosia v. Amazon.com, Inc., No. 15-423-cv (2d Cir. Aug. 25, 2016). The district court concluded that a consumer was “bound by the mandatory arbitration provision in [a web provider’s] Conditions of Use” by placing an order on the web-based provider’s site; the Second Circuit was “not convinced.” The court reasoned that “[n]othing about the ‘Place your order’ button alone suggests that additional terms apply, and the presentation of terms is not directly adjacent to the ‘Place your order’ button so as to indicate that a user should construe clicking as acceptance.” The court further noted the web-based provider’s order page was distracting: “there appear to be between fifteen and twenty-five links on the Order Page, and various text is displayed in at least four font sizes and six colors (blue, yellow, green, red, orange, and black), alongside multiple buttons and promotional advertisements.” As a result, the court stated that it did “not hold that there was no objective manifestation of mutual assent here as a matter of law” but instead concluded that “reasonable minds could disagree on the reasonableness of notice.” The case was remanded for further proceedings.
Industry Groups Voice Concern that the CFPB's Arbitration Proposal Fails to Provide Protection for Consumers
On August 22, the American Bankers Association, the Consumer Banks Association, and the Financial Services Roundtable sent a letter to CFPB Director Cordray regarding the agency’s proposed arbitration rule. According to the Associations, the CFPB’s proposal seeking to impose certain restrictions on the use of mandatory pre-dispute arbitration clauses is inconsistent with the agency’s March 2015 study of consumer arbitration and fails to meet the Dodd-Frank requirements that it provide consumer protection and satisfy the public interest. Arguing that consumers will “truly suffer if the proposed rule becomes final,” the letter highlights the following concerns: (i) due to the “surge” of additional class actions, consumers, as tax payers, will be forced to pay for the increased costs to the court systems; (ii) as litigants, they will face backlogs as court systems experience delays in administering and resolving the class action suits; (iii) as customers of financial service providers, they will be subject to increased prices and/or reduced services because “the billions of dollars in class action litigation costs will be passed through them in whole or in part”; and (iv) consumers will lose the benefits of arbitration, including efficiency, convenience, and fewer costs. The Associations contend that the proposal, if passed, would be particularly restricting for small dollar “non-classable” claims. The Associations further their argument against the proposal by pointing to various inconsistencies with the conclusions outlined in the CFPB’s March 2015 study. Moreover, the letter asserts that the CFPB’s 2015 study was “incomplete” because it failed to address and analyze several key issues that would further demonstrate the proposed rule’s shortcomings with respect to public interest, including, among other things, consumer satisfaction with arbitration and the potential impact the removal of arbitration would have on consumers and the public. The Association’s recommendation that the CFPB not proceed with finalizing its proposal is one of many submitted to the agency, including a recent letter from various House Republicans expressing concern that the proposal “will choke off access to products and services that help consumers manage their creditworthiness, monitor changes in their credit reports, and protect themselves against identity theft.” The influx of comments on the proposal came at the close of its comment due date, August 22, 2016.
State Attorneys General Issue Letter in Support of CFPB's Proposed Arbitration Rule
On August 12, Massachusetts AG Healey, alongside 17 other state attorneys general, sent a letter to CFPB Director Cordray in support of the agency’s proposed rule seeking to impose restrictions on the use of mandatory pre-dispute arbitration clauses by covered providers of certain consumer financial products and services. Although the letter supports the CFPB’s proposed rule, it encourages the CFPB to consider regulations that would prohibit such clauses outright. According to the letter, class action litigation would provide consumers with “real and meaningful benefits,” such as monetary and injunctive relief through settlements, and may further spur industry-wide reforms as well as regulatory and legislative action. The letter further supports the CFPB’s “effort to increase transparency in the arbitration process by requiring covered entities to submit initial claim filings and written awards in arbitration proceedings to the Bureau,” and encourages the agency to (i) publish the information publicly on its website; (ii) enforce timing obligations for reporting the information; and (iii) establish strict penalties, including fines and loss of arbitration privileges, against entities that do not comply with the reporting requirements.