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Pence Casts Tiebreaking Vote to Kill CFPB's Arbitration Rule

The vice president cast his tiebreaking vote late Tuesday night. The measure now heads to President Trump's desk, where it is likely to be signed. Once it does, not only will the CFPB's arbitration rule be invalidated, the bureau won't be allowed to issue a similar rule unless authorized to do so in a subsequent law.

October 25, 2017
Pence Casts Tiebreaking Vote to Kill CFPB's Arbitration Rule

 

4 min to read


WASHINGTON, D.C. — The Republican-controlled Congress is now one signature away from repealing the Consumer Financial Protection Bureau’s rule banning mandatory pre-dispute arbitration agreements, thanks to an eleventh-hour vote by Vice President Mike Pence to break the U.S. Senate’s 50-50 split vote on a resolution challenging the regulator’s rule.

Pence and the U.S. Senate cast their vote at 9:46 p.m. on Tuesday night —36 days after the CFPB’s rule took effect on Sept. 18. It would have applied to contracts signed 180 days after the effective date, or March 19. The measure now heads to President Donald Trump’s desk, where it is likely to be signed.

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“President Donald J. Trump applauds the Congress for passing H.J. Res. 111,” read a statement posted on the White House’s website. “According to a recent report by the Department of the Treasury, the evidence is clear that the CFPB’s rule would neither protect consumers nor serve the public interest. Rather, under the rule, consumers would have fewer options for quickly and efficiently resolving financial disputes.”

The bureau published its rule in the Federal Registrar on July 19. House and Senate Republicans responded the next day by filing joint resolutions of disapproval under the Congressional Rule Act, which gives Congress the power to block rules issued by federal agencies if both houses approve the resolution and it receives the president’s signature. The resolution then becomes law and the rule becomes “of no force and effect.” The CRA also prevents the agency from issuing another rule in “substantially the same form” as the disapproved rule unless authorized to do so in a subsequent law.

The joint resolution was first passed by the Republican-controlled House on July 25 by a 231 to 190 roll-call vote, with only one Republican, Rep. Walter Jones of North Carolina, voting against blocking the rule. Approval by the Senate, where Republicans hold a slim 52-48 majority, wasn’t a sure thing.

On Tuesday night, Republican Senators John Kennedy of Louisiana and Lindsey Graham of South Carolina joined Democrats in voting against the resolution, along with Independents Angus King of Maine and Bernie Sanders of Vermont. Their votes set up Pence’s tiebreaking vote.

“Tonight’s vote is a giant setback for every consumer in this country,” CFPB Director Richard Cordray said in a statement. “Wall Street won and ordinary people lost. This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company.”

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The CFPB’s rule wouldn’t have banned companies from including arbitration clauses in finance contracts, although it would have prevented creditors from using arbitration to stop consumers from being part of a class action. Companies that elected to retain those clauses, according to the rule, would have been required to use specific language in their agreements.

The rule also included certain record-keeping requirements, including the retention and submission of initial claims and counterclaims, answers to those claims and counter claims, and awards issued in arbitration. The mandate was designed to allow the CFPB to better understand and monitor arbitration.

The CFPB’s rule would have applied to major markets of consumer financial products and services overseen by the bureau, including entities that lend money, store money, and move or exchange money. As for the automotive retail industry, the rule would have impacted dealers exempt from the bureau’s jurisdiction under the Dodd-Frank Act indirectly, while nonexempt dealers would have been impacted directly.

The big question in the F&I arena is whether the rule would have permitted the financing of a vehicle service contract containing an arbitration agreement barring class action relief. With Tuesday’s vote, that’s no longer a concern.

“We are pleased the Senate recognized the fallacy behind the CFPB’s ill-conceived arbitration rule and took action to defend the interests of the very consumers the bureau is supposed to protect,” said Steve Jordan, CEO of the National Independent Automobile Dealers Association. “This rule was nothing more than a boon to class action lawyers levied on the backs of America’s hard working consumers.”

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The National Automobile Dealers Association added: “Congress’ overturning of the rule foreshadows significant changes that the CFPB is expected to face over the coming months as the Trump administration appoints a new leader to the bureau, which has been mired in partisan controversy since it was created after the financial crisis. Mr. Cordray’s term runs through next July, but many think he might step down sooner to run for governor of Ohio.”

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