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Sunday, January 26, 2020

Attorney: Lawsuit against CFPB's 'unfortunate' arbitration rule helps protect businesses

By Jessica Karmasek | Oct 23, 2017

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WASHINGTON (Legal Newsline) - A public policy veteran who has worked closely with the Consumer Financial Protection Bureau in recent years says a lawsuit filed in Texas federal court last month over the bureau’s final rule banning the use of mandatory arbitration clauses is a “necessary step” to protect businesses across the country.

Joe Rubin, who recently was named senior vice president of government relations and public affairs at Washington, D.C.-based public relations firm MWWPR, said the plaintiff groups’ arguments are “very strong.”

“Indeed, it is unfortunate that the CFPB even went forward with this rule,” he told Legal Newsline.

“As even the data from the CFPB demonstrated, pre-dispute arbitration benefits consumers and leads to quicker recoveries and more resources for consumers than class action cases.”

More than a dozen business and financial groups - including the U.S. Chamber of Commerce, American Bankers Association, American Financial Services Association, Consumer Bankers Association and Financial Services Roundtable, among others - contend in their Sept. 29 filing in the U.S. District Court for the Northern District of Texas-Dallas, that the CFPB’s anti-arbitration rule is invalid and should be set aside.

The U.S. Chamber Institute for Legal Reform owns Legal Newsline.

The groups’ complaint comes nearly three months after the CFPB issued its much-anticipated new rule, which prohibits the use of mandatory arbitration clauses in consumer financial products and services contracts to prohibit class action lawsuits.

Financial institutions, under the new rule, can still include arbitration clauses, but the clauses cannot be used to stop consumers from filing class actions.

Basically, if companies want to include an arbitration clause in a consumer contract, very specific language must be used.

Rubin, who previously served as senior counsel at Arnall Golden Gregory LLP, advising clients on all aspects of the public policy cycle, from public affairs and crisis management to Congressional, Federal Trade Commission, CFPB and Department of Transportation investigations, and from legislation to rulemaking to implementation, said it is “unfortunate” that the lawsuit is even necessary.

Rubin, who regularly worked with the bureau on compliance issues and enforcement matters, said it was “clear from the beginning” that the CFPB had the intention of banning pre-dispute arbitration.

Still, even with that in mind, it could not come up with a study strong enough to support that end goal, he said.

“In other words, knowing that they needed to craft a study that clearly demonstrated a rationale for ending pre-dispute arbitration, they fell far short of that goal,” Rubin explained.

“This helps to demonstrate just how effective pre-dispute arbitration is -- even with the deck stacked against it, the CFPB could not manufacture enough support to clearly make the case for banning arbitration.”

The groups argue in their complaint, among other things, that the rule violates the Administrative Procedure Act, or APA, because the CFPB failed to observe procedures required by law when it adopted the conclusions of a “deeply flawed” study that improperly limited public participation, applied “defective methodologies,” “misapprehended” the relevant data, and failed to address “key considerations.”

“The study was the product of a closed process that largely precluded meaningful public comment on the key issues,” they wrote of the bureau’s report, released in 2015. “That failure to engage with knowledgeable stakeholders distorted the Bureau’s analysis, evidently with the aim of allowing the Bureau to reach a preordained conclusion -- regardless of the evidence.”

Rubin said he believes the plaintiffs should prevail in obtaining both a preliminary and permanent injunction halting the implementation of the rule -- even if the U.S. Senate fails to act.

However, he said there is a “strong possibility” that the Senate will pass the Congressional Review Act provision to overturn the rule.

The CRA gives Congress the power to review, through an expedited legislative process, new federal regulations issued by government agencies and, by passage of a joint resolution, to overrule a regulation.

A resolution of disapproval must be either signed by the President or be passed over the President’s veto by two thirds of both houses of Congress.

A small group of Republican senators have been identified as possible roadblocks to such a resolution, including Alaska’s Lisa Murkowski, Louisiana’s John Kennedy and Maine’s Susan Collins.

Their support will be needed if the other 49 Senate Republicans want to use the CRA to kill the rule.

“This lawsuit is a necessary step to protect businesses in case the Senate does not act in time,” Rubin said, noting the rule is effective March 19, 2018.

He said companies may have to begin developing and implementing policies and procedures to implement the rule if the Dallas federal court and/or Congress do not act in the next few weeks.

Companies also can challenge the rule, either by seeking a preliminary injunction, such as the Chamber’s case attempts to do, or to fight it as a defendant if and when the CFPB begins to enforce it, Rubin said.

“That is a riskier path, but companies that are confident that the CFPB rule is invalid could simply wait for the CFPB to bring an enforcement action based on the rule, and challenge it at that point,” he explained.

The CFPB declined to comment on the lawsuit recently filed in Texas federal court.

Meanwhile, one federal regulator has told members of a U.S. Senate committee that the bureau is keeping its research secret.

Keith Noreika, the acting Comptroller of the Currency, wrote the chairman and ranking member of the Senate Committee on Banking, Housing and Urban Affairs on Oct. 17 to complain that a proposed regulation will have disastrous results for both the financial services industry and its customers -- while benefiting trial lawyers.

His letter comes after a recent battle of op-eds in The Hill between Noreika and Richard Cordray, director of the CFPB, in which they debated each other’s forecast for the arbitration rule. OCC economists say there is an 88 percent chance of the cost of credit increasing and predict at least a 3.5 percentage point jump in interest rates.

Cordray says the total costs of the rule will be $1 billion, compared to bank profits of $171 billion last year. He called Noreika’s claims “demonstrably bogus.”

All of this is occurring amid a lawsuit that challenges the structure of the CFPB, which has been deemed unconstitutional by the federal appeals court in D.C.

The CFPB was created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. It has since been headed by Cordray, a Democrat and former Ohio attorney general.

The lawsuit questions the agency’s structure in that the director can’t be removed without cause. A three-judge panel of the D.C. Circuit found this unconstitutional, and the case now will be heard by the entire roster of D.C. judges.

President Donald Trump’s administration has indicated a preference to remove the CFPB director at-will, meaning Cordray’s days would likely be numbered if the D.C. Circuit’s ruling is affirmed.

From Legal Newsline: Reach Jessica Karmasek by email at

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Organizations in this Story

Consumer Financial Protection BureauU.S. SenateAmerican Bankers AssociationU.S. Chamber of CommerceAmerican Financial Services Association PACConsumer Bankers Association Political Action Committee, theFinancial Services Roundtable PACU.S. District Court for the Northern District of Texas