Consumer Law & Policy Blog

Compass Point Estimates 60% Chance of Congress Using CRA to Block CFPB Arb Rule

From Politico's Morning Money newsletter:

Compass Point analyst Isaac Boltansky on what’s next — "We now peg the odds of the mandatory arbitration rule being reversed through the [Congressional Review Act] at 60 percent. The House will easily clear the measure, but the whip count in the Senate is still fluid at this juncture and appears to be losing its footing."

White House "Strongly Supports" CRA Attack on CFPB Arb Rule

by Jeff Sovern

Here. Not a surprise, but the nail in the coffin of those who believed President Trump would make good on his promises to protect ordinary Americans.

My Morning Consult Op-Ed: Financial Choice Act Prioritizes Banks Over Consumers

by Jeff Sovern

Here.  Excerpt:

Remember how back in 2008, the Bush administration shepherded a $700 billion bank bailout through Congress? Well, the House of Representatives voted last month to rescue banks yet again. And if its bill, the Financial Choice Act, becomes law, ordinary Americans may pay a bigger price than they did for the 2008 bailout.

* * *

Supporters of the bill, claiming that every day the country loses another community bank, argue that banks are in trouble. The culprit, in their eyes, is the Dodd-Frank Act, passed in 2010 to prevent another financial crisis, which they argue imposes excessive regulation on banks.

Opponents of the bill note that, as one recent headline had it, American bank profits are higher than ever, and community bank profits rose by more than 10 percent in the first quarter of this year. Despite the consolidation of community banks — a trend that began years before Dodd-Frank, suggesting other causes for the consolidation — the country still has almost 6,000 FDIC-insured banks, and a similar number of credit unions.

House Vote on CRA Resolution on CFPB Arbitration Rule Could Come Tuesday

by Jeff Sovern

The House Rules Committee is meeting today at 5:00 to consider granting a rule for the House to take up H. J. Res. 111, under which the House would vote to block the CFPB arbitration rule from taking effect.  I hear the House could vote on the resolution itself tomorrow.

House Financial Services Committe Minority Staff Issues Report on CFPB

The report is titled THE CONSUMER FINANCIAL PROTECTION BUREAU IN PERSPECTIVE. Quoting now from the findings listed in the Executive Summary:

1. Before the Consumer Bureau was created, financial regulators prioritized the profits of Wall Street firms at the expense of consumers’ financial well-being on Main Street. Previously, Federal prudential regulators were tasked with dual, and often conflicting, duties of supervising the safety and soundness of financial institutions while also ensuring compliance with consumer protection laws. This fragmented and conflicted regulatory framework resulted in regulatory arbitrage and lax enforcement of consumer protection laws.
2. Despite relentless * * * attempts to undermine and gut the Consumer Bureau, it has effectively carried out its mission of holding predatory actors in the financial sector accountable for ripping off their customers and protecting all consumers from unfair, deceptive, or abusive acts and practices. The Consumer Bureau, through its enforcement actions against bad actors, has returned nearly $12 billion to 29 million consumers.
3. Contrary to * * * arguments that it is ideologically driven, the Consumer Bureau has consistently proved that it operates in a nonpartisan, fair, and data-driven manner. For example, the Consumer Bureau conducted an exhaustive review of the use of mandatory pre-dispute arbitration agreements in consumer financial contracts, including a consumer survey, requests for stakeholder input, roundtables, and extensive consultation with other regulators. This deliberative work culminated in a 728 page report that informed its decision that a rule banning these harmful clauses was in the public’s interest and was needed to protect consumers.
4. The Consumer Bureau is an independent watchdog that is fully responsive to the wide-ranging challenges confronting an increasingly diverse consumer demographic, and is not beholden to special interests or partisan whims. Consumers now know their concerns will be taken seriously when they turn to the Consumer Bureau. More than 1.2 million consumer complaints have been submitted to the Consumer Bureau, with 97 percent receiving timely responses from companies. The public nature of the database helps to promote fairer treatment of consumers by financial companies and to strengthen market discipline.
5. The Consumer Bureau’s frequent testimony before Congress, semi-annual reports, and good faith responses to Congressional oversight demands, even the most unjustified, have demonstrated it is fully accountable for its actions. Since it opened its doors, the Director of the Consumer Bureau and other senior officials have testified before Congress 63 times.
6. The conduct of [certain members of Congress] towards the Consumer Bureau under the guise of “Congressional oversight” is designed to undermine the agency’s primary mission: protecting consumers from predatory financial actors and ensuring markets for consumer financial products and services are fair, transparent, and competitive. Committee [members] have initiated dozens of “investigations” of the Consumer Bureau since January 2014, forcing it to produce more than 170,000 pages of documents for the Committee in response to over 90 letters of inquiry; unilaterally issued 20 subpoenas to the Consumer Bureau; and compelled several of the Consumer Bureau’s former and current employees to sit for over 40 hours of depositions.
7. Although the Consumer Bureau’s arbitration rule is a case study in thoughtful, effective rulemaking, it immediately became the subject of unfair partisan attacks * * * in Congress and the Acting Comptroller of the Currency. The Dodd-Frank Act directed that the Consumer Bureau study mandatory pre-dispute arbitration clauses in consumer contracts and to issue a part of this review, the Consumer Bureau completed a thorough 728 page study, which noted that millions of consumers are subject to forced pre-dispute arbitration clauses in their contracts for consumer products or services. The Consumer Bureau rightly concluded that these clauses restrict consumers’ ability to get relief in disputes with financial companies by limiting their ability to pursue class-actions. As a result, the Consumer Bureau has moved to ban these contracts. However, the final rule is now unfairly under attack * * * who have threatened Director Corday with contempt, made through the Congressional Review Act, all so they can deny ripped off consumers their day in court.

Chamber of Commerce Threatens to Use CRA Vote on CFPB Arbitration in Grading Legislators

by Jeff Sovern

The Chamber's letter to House members is here. Here is the relevant text (bolding in original): 

The U.S. Chamber of Commerce ("Chamber") urges you to support H.J. Res. 111, which would undo a rule left over by the Obama Administration and recently finalized by an out of control Consumer Financial Protection Bureau (CFPB). The Chamber will consider including votes on, or in relation to, this bill in our annual How They Voted scorecard.

The only footnote to the letter cites Jason Johnston & Todd Zywicki, The Consumer Financial Protection Bureau’s Arbitration Study: A Summary and Critique 8, Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA (Aug. 2015). Johnston & Zywicki are described in the letter as "distinguished academics." I guess one way to get praise is to support business. My views on their paper can be found here.

The continuing Rule 23 "ascertainability" wars

In recent years, federal courts have been addressing corporate class-action defendants' claims that the federal class-action rule (Rule 23) contains an rigorous "ascertainability" requirement -- a supposed need for the plaintiffs to show, at the certification stage (rather than at the remedy phase), that they have a crackerjack method for identifying the class members with precision. Corporate defendants and their trade groups have asked the Supreme Court to take on this issue in the recent past, but without success so far.

The latest attempt came in May of this year in Conagra v. Briseno, No. 16-1221 (cert-stage briefs here). The Supreme Court will decide whether to review the case sometime this fall (probably in October).

Arbitration Expert & Professor Jean Sternlight: Consumer bureau’s new rule will better protect consumers from the abusive financial companies

Here.  Excerpt:

Focusing, for example, on cases involving unlawful check bouncing charges, the bureau [study] found that class actions brought on this issue alone allowed millions of financial consumers to recover nearly $1 billion of damages as well as important non-monetary relief, all of which deters future legal violations.

By contrast, the bureau learned that consumers who have been defrauded by excessive check bouncing fees or other similar financial misconduct are not likely to know that they have been harmed, even less likely to realize that the harm was illegal, and certainly not likely to try to bring an individual arbitration claim over quite a small amount of money. This, together with the fact that federal and state investigative agencies are typically underfunded, is why class actions remain a critically important means of enforcing our laws.

CFPB celebrates its 6th birthday with a report touting what it considers its top 6 achievements

Last Friday marked the Consumer Financial Protection Bureau's 6th birthday. It celebrated with a report describing what it considers the agency's top 6 accomplishments.These topics are described below, and the specifics are provided after the jump (with links to further information).

1. Our actions have resulted in nearly $12 billion in relief for more than 29 million harmed consumers.

2. We’ve handled more than 1.2 million consumer complaints.

3. We put in place strong protections for prepaid account consumers.

4. We issued a rule that will ban financial companies from using arbitration clauses that deny groups of consumers their day in court.

5. We’ve put rules in place to make the mortgage market safer for consumers.

6. We’ve empowered millions of consumers with information to navigate financial choices.

D.C. Circuit upholds Department of Transportation rule banning use of e-cigarettes on commercial air flights

In Competitive Enterprise Institute v. DOT, by a 2-1 vote, the D.C. Circuit has upheld a Department of Transportation rule banning use of e-cigarettes on commercial passenger flights. The main question was whether Congress's 1987 law making it illegal "to smoke" on certain commercial flights justified a recent regulatory ban on using (or, some might say, "smoking") e-cigarettes in-flight. The majority opinion, by Senior Judge Raymond Randolph, held that the statute doesn't unambiguously answer the question, and then the majority deferred, under Chevron, to what it viewed as the agency's reasonable interpretation:

Although the statute does not define “smoke,” some dictionary definitions, some state laws, and some characterizations of smoking by the e-cigarette industry itself support the Department [of Transportation]. But other dictionary definitions and other state laws support petitioners. We therefore cannot say that Congress spoke to the precise question at issue. Petitioners present no arguments under Chevron’s second step “beyond those already discussed as part of step one.” See Consumer Elecs. Ass’n, 347 F.3d at 299. The Chevron-one analysis supports a reasonableness finding. So does our 2010 decision concluding that the Food and Drug Administration can regulate e-cigarettes as “tobacco products” because the liquid nicotine solution in e-cigarettes is derived from tobacco plants. See Sottera, 627 F.3d at 898-99. A “smoking prohibition” reasonably applies to products intended to enable users to inhale and exhale such nicotine.

Judge Brett Kavanaugh concurred in Judge Randolph's opinion, but noted that he would have upheld the regulation as the best interpretation of the statute even without Chevron deference. (The majority also upheld the rule against an arbitrary-and-capricious challenge and a couple procedural challenges.) Senior Judge Douglas Ginsburg dissented, saying that, in 1987, "smoking" unambiguously did not include e-cigarette use. 

The decision produced a range of different views on the validity of an important regulation. The majority opinion accepts Chevron deference as settled law, but footnotes 3 and 4 of Judge Randolph's opinion question the propriety of its use in some contexts, including those that appear applicable to the e-cigarette ban. (These footnotes are reproduced after the jump.) Questioning Chevron seems to be in vogue these days, and I wouldn't be surprised if the challengers head to the Supreme Court.