Consumer Law & Policy Blog

American Banker: GOP efforts to repeal CFPB arbitration rule off to rocky start

by Jeff Sovern

Here. The article points out that one Republican member of the Senate Banking Committee, John Kennedy of Louisiana, did not agree to cosponsor the Senate CRA resolution to rescind the CFPB rule (he was said to be reviewing the resolution); that Senator McCain's unfortunate health issues may prevent him from voting on the resolution; and that the more moderate Senate Republicans, like Senators Collins and Murkowski, have yet to be heard from on the resolution. Senator Collins voted for the Dodd-Frank Act, which created the CFPB and authorized it to regulate arbitration.

Consumerist: Lawmakers Who Want To Hand ‘Get Out Of Jail Free’ Card To Banks Made Millions From Financial Sector Last Year

Here.  Excerpt:

[T]he two main sponsors — Rep. Jeb Hensarling (TX) and Sen. Mike Crapo (ID) — received a total of $6 million in campaign contributions from the financial sector in 2016, with $1.9 million going to Hensarling’s campaign and $4.1 million going to Crapo.

* * *

Sen. Pat Toomey (PA) received a total of $7 million from this sector in 2016. According to the Center for Responsive Politics, Toomey was the largest recipient of funding from commercial banks last year, * * *

* * * Sen. Bob Corker (TN), whose campaign took in $3.7 million from this sector, * * * Arkansas Senator Tom Cotton raised $2.7 million from financial firms in 2016, * * *

The eight Senate sponsors of this bill received a total of $24 million — an average of $3 million each — in 2016 from the industry that would be most affected by the new rules.

Over in the House, the individual numbers aren’t as large, but they do add up, with the supporting legislators’ campaigns earning more than $22 million from financial companies in the last election cycle.

 

House Appropriations Committee Passes Bill To Gut Consumer Financial Protection and Repeal CFPB's Authority to Regulate Arbitration

by Jeff Sovern

On a party line vote of 31-21, the House Appropriations Committee passed the Financial Services Appropriation bill.  Section 930 of the bill repeals the CFPB's authority to regulate arbitration.  Section 926 would subject the CFPB to the congressional appropriations process, thereby making it more accountable to lobbyists. Section 927 would gut the Bureau's power to supervise financial institutions. Section 928 would eliminate the Bureau's jurisdiction over payday lenders, including if they committed outright fraud, the Bureau would be unable to intervene. Section 929 would take away the Bureau's UDAAP powers, which would have meant it could do nothing about the Wells Fargo phony account scandal. (HT: Adam Zimmerman)

House Subcommittee Hearing on Debt Collection Bills, Including One to Extend FDCPA to Debt Buyers

The hearing was held by the House Financial Services Committee Subcommittee on Financial Services and Consumer Credit. The ACA has a report here.  Nine bills were under discussion. Excerpt:

“Just to give everyone an idea, H.R. 864, the Stop Debt Collection Abuse Act, was a bipartisan effort on behalf of myself, [U.S. Reps. Keith Ellison, D-Minn., Emanuel Cleaver, D-Texas and French Hill, R-Ark.] to make sure that the federal government uses the same practices that the private [debt collection] sector uses,” [Representative Mia] Love said.

* * *

H.R. 864 would amend the FDCPA, including classifying debt buyers as “debt collectors” and subjecting debt collectors for federal agencies to FDCPA requirements.

Senator Cotton's Ignorance About Ignorance and the CFPB's Arbitration Rule

by Jeff Sovern

Yesterday, according to The Hill, Senator Tom Cotton of Arkansas, announced that he would seek to block the CFPB's Arbitration Rule using the Congressional Review Act, saying:

“The Bureau’s new rule on arbitration clauses ignores the consumer benefits of arbitration and treats Arkansans like helpless children, incapable of making business decisions in their own best interests . . . ”

Well, ok.  Except that every study that has looked at the issue (including one I co-authored) has found that consumers don't understand arbitration clauses.  See here and here. Not only has no study ever found that consumers understand them, but industry lobbyists concede consumers are not aware of arbitration clauses.  See American Financial Services Association, Comment Letter on Telephone Survey Exploring Consumer Awareness of and Perceptions Regarding Dispute Resolution Provisions in Credit Card Agreements (Aug. 6, 2013) (“The results of the [proposed CFPB] Survey will undoubtedly show that the vast majority of consumers are not aware of most of the provisions in their card agreements . . . . [S]tudies have shown that consumers do not generally read contracts. Accordingly, if consumers do not read contracts generally, there is no reason to assume that they may read an arbitration provision, in particular . . . . [T]he [proposed CFPB telephone] Survey is likely to show that consumers are not generally aware of the arbitration provision in their credit card agreement . . . .”). Cf. U.S. Chamber of Commerce, Statement on Examining the CFPB’s Proposed Rulemaking on Arbitration: Is it in the Public Interest and for the Protection of Consumers, App. 15 (May 18, 2016) (hereinafter, Chamber of Commerce Statement) (“The only data that the Bureau’s study delivers is that, unsurprisingly, consumers are not focused on arbitration clauses.”); U.S. Chamber of Commerce, Comments on Proposed Rulemaking on Arbitration Agreements 31 (Aug. 22, 2016) (same).

If we were to take Senator Cotton's logic to its extreme, we wouldn't require prescriptions for medications, because after all, requiring prescriptions assumes patients are incapable of making medical decisions in their own best interests.  We wouldn't require cars to be safe, because such requirements assume consumers can't make decisions about whether they want a safe car or not.  We would allow anyone to practice law or medicine without a license because . .  .  well, you get the idea.

 

 

Will Congress CRA the CFPB Arbitration Rule? A Roundup

by Jeff Sovern

Here's what David Lazurus says in his LA Times column, Banks and credit card companies can't try to stop you from joining a class action lawsuit — for now:

Consumer advocates — who for months have been gearing up for this fight — tell me they have little doubt the House will swiftly use the Congressional Review Act to undermine the CFPB’s arbitration rule. Then the matter goes to the Senate, and that’s where advocates hope they can mount their defense.

I’m hearing that all roads lead to Sen. Lindsey Graham (R-S.C.), who introduced a bill in 2015 aimed at giving military service members the right to opt out of mandatory arbitration and have their day in court if they believe they were treated unfairly in foreclosure proceedings or other issues involving repossession of property.

I called and emailed Graham’s office Monday. No one responded.

My hunch is that Graham and other Republicans who may be waffling on healthcare won’t also pick a fight on arbitration. They may feel that crushing the CFPB’s new rule will help Senate Leader Mitch McConnell save face after the bruising healthcare battle.

Evan Weinberger has CFPB Bets Congress Will Let Arbitration Rule Slip By in Law360, in which he wrote:

[T]he breadth of industry opposition to the rule will make it harder for Congress to skip over the bureau’s move against arbitration, said Joseph T. Lynyak, a partner with Dorsey & Whitney LLP.

“There seems to be such an imperative, and a coalition being created, to get this thing killed,” he said.

Industry groups including the Chamber and the American Bankers Association have already called on Congress to use the CRA to eliminate the rule.

Emily Stewart's reports in CFPB Class-Action Rule Already in Limbo as Senator Moves to Challenge in The Street that Senator Cotton has started the process of invoking the CRA as to the rule.  Here is  more from her:

"[W]e remain dubious that Congress will permit the rule to take effect," said Cowen analyst Jaret Seiberg in a note on Monday after the rule was announced, adding that he expects Congress to use the CRA to void the arbitration rule.

 If that indeed happens, the CFPB would be barred from reinstating any similar rule in the future without the consent of Congress. * * * 

Congress in May failed to roll back a separate rule by the CFPB intended to make prepaid payment cards more affordable and transparent. Compass Point analyst Isaac Boltansky said in a note the effort to reverse the arbitration rule is "far better positioned politically" than the prepaid rule, but the fate of the rule will "be determined by public perception" in the weeks to come. 

"If the rule is tagged as an eleventh-hour policy aimed at padding the pockets of trial attorneys and setting the stage for an end to arbitration all together, then the odds will be modestly in favor of reversal," he said. If the rule is successfully framed as a valiant defense of consumer rights against Wall Street greed, then the odds will be against reversal." 

Boltansky gives the CFPB's arbitration rule slightly less than a 50% chance of being reversed via the CRA.

Kate Berry and Ian McKendry have written Fight over CFPB arbitration rule may just be starting in the American Banker. Here's some of what they have to say:

"I believe it will be all hands on deck to do a CRA resolution on this rule," said Richard Hunt, president and CEO of the Consumer Bankers Association.

House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, quickly threw his support behind a rollback of the rule. "As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act," said Hensarling.

* * *

Acting Comptroller of the Currency Keith Noreika also sent a letter to Cordray earlier in the day raising questions about the rule's impact on financial stability. * * *

But Eric Goldberg, a CFPB senior counsel, said the CFPB consulted with the Treasury Department and other prudential regulators before issuing the rule.

And on a related topic, Adam Levitin has an excellent discussion about the likelihood that the FSOC will block the rule at Credit Slips.

Critic of CFPB Structure Neomi Rao Nominee to Head OIRA

by Jeff Sovern

OIRA is the Office of Information and Regulatory Affairs (formerly headed by Cass Sunstein). It presides over the issuance of regulations by executive agencies, but not independent agencies (at least, not yet) like the CFPB.  President Trump has nominated for its director George Mason Professor Neomi Rao, a former clerk for Justice Thomas and counsel to the Senate Judiciary Committee under Senator Orrin G. Hatch; she also served in the Bush II administration. The Times has more here.   As for her views on the CFPB, Professor Rao has an article, Administrative Collusion: How Delegation Diminishes the Collective Congress, 90 N.Y.U.L. Rev. 1463 (2015), in which she states that "Reporting about the CFPB reflects the common understanding that the CFPB responds primarily to Senator Elizabeth Warren, who developed and helped to establish the Bureau," and "[A]gency officials and congressional staffers understand that Senator Elizabeth Warren and her staff exercise substantial influence and control over the CFPB, the agency she helped design." I've omitted the cites, but you can click on the linked article to find them if you want. Here's the article's abstract:

This Article identifies a previously unexplored problem with the delegation of legislative power by focusing not on the discretion given to executive agencies, but instead on how delegations allow individual congressmen to control administration. Delegations create administrative discretion, discretion that members of Congress can influence through a variety of formal and informal mechanisms. Members have persistent incentives for delegation to agencies, because it is often easier to serve their interests through shaping administration than by passing legislation. To understand the particular problem of delegation, I introduce the concept of the “collective Congress.” Collective decisionmaking is a fundamental characteristic of the legislative power. The collective Congress serves an important separation of powers principle by aligning the ambitions of legislators with the power of Congress as an institution. Although members represent distinct interests, the Constitution allows members of Congress to exercise power only collectively and specifically precludes them from exercising any type of individual or executive power. Delegation, however, provides opportunities for individual legislators to influence administration and poses a serious separation of powers concern by fracturing the collective Congress. This insight undermines the conventional view that delegations will be self-correcting because Congress will jealously guard its lawmaking power from the executive. Instead, members of Congress will often prefer to collude and to share administrative power with the executive. As a result, delegation destroys the Madisonian checks and balances against excessive delegation. This structural failure suggests a need to reconsider judicial enforcement of the nondelegation doctrine and to implement political reforms to realign Congress with its collective power.

 

USA Today Editorial: Republicans side with banks over consumers

by Jeff Sovern

Here.  Excerpt:

Faced with a choice between helping their constituents or helping themselves to a campaign donation haul, House Republicans are siding with deep pockets.

All but one of the House’s 234 Republicans voted last month to gut a powerful agency — the Consumer Financial Protection Bureau — that banks, credit card issuers, debt collectors and other financial players have been seeking to weaken for years. No Democrats voted in favor of the measure.

These special interests routinely shower lawmakers with campaign cash: Commercial banks and their trade association political action committees (PACs) gave Republicans running for federal office in 2016 more than $9 million, nearly 75% of their total giving. Finance and credit company PACs handed over $2.8 million to GOP candidates.

Richard Hunt of the Consumer Bankers Association has an opposing column here. His column focuses on the CFPB's structure and doesn't address the content of the Financial Choice Act, which the USA Today editorial discusses.

Appropriations Bill That Would Harm the CFPB and Consumers Passes House Appropriations Subcommittee

by Jeff Sovern

Next stop should be the full committee, then the House floor. 

The House Appropriations Bill Is Much Worse for Consumers Than Originally Reported

by Jeff Sovern

We posted yesterday about the House Appropriations Bill. I haven't studied the bill, but on a quick look, it contains a number of objectionable provisions from the Financial Choice Act (already passed by the House), including repeal of the CFPB's power to regulate arbitration and payday lenders and to block conduct on the ground that it is deceptive, unfair, or abusive (UDAAP authority). It also eliminates the Bureau's supervisory authority.  More from Law360's Evan Weinberger here. By attaching these provisions to the appropriations bill, which is very likely to pass in at least some form, their supporters increase their chances of getting something through Congress, even if the Financial Choice Act fails of passage.