The anti-arbitration rule issued by the Consumer Financial Protection Bureau in July is now just one short step away from elimination.

The Senate tonight voted 51-50 (with Vice President Pence casting the deciding vote) to invalidate the CFPB’s rule under the Congressional Review Act (“CRA”). That vote follows the House of Representatives’ disapproval of the rule in July.

The last remaining step is the President’s signature on the legislation, which seems highly likely given the Administration’s statement today (pdf) urging the Senate to invalidate the rule.

The President’s approval will trigger two provisions of the CRA.

First, the rule “shall not take effect (or continue)” (5 U.S.C. § 801(b)(1)). In other words, the rule no longer has the force of law and businesses are no longer required to comply with its terms.

Second, the CFPB may neither re-issue the rule “in substantially the same form” nor issue a new rule that is “substantially the same” as the invalidated rule—unless Congress enacts new legislation “specifically authoriz[ing]” such a rule (5 U.S.C. § 801(b)(2)). The scope of this “substantially the same” standard has not been addressed by the courts, but it seems clear that at the very minimum the Bureau cannot issue (a) a new rule banning class action waivers; (b) an express ban of pre-dispute arbitration clauses; (c) a rule that has the practical effect of eliminating pre-dispute arbitration clauses; or (d) any other rule that imposes similar burdens on the use of arbitration.

Invalidation of the rule under the CRA also will moot the pending broad-based industry lawsuit against the CFPB challenging the legality of the regulation. (Mayer Brown represents the plaintiffs in the litigation).

The rule (pdf) just proposed by the Consumer Financial Protection Bureau to regulate arbitration agreements is not a surprise: the Bureau has said for months that it was developing such a rule.

This post examines the details of the proposal—how it would regulate arbitration, its scope, and its effective date. We also discuss the course of the rulemaking process, including potential judicial review of any final rule. In a future post, we’ll evaluate the CFPB’s purported justifications for the regulation.

The bottom line: The CFPB’s proposal is effectively a blanket ban on the use of arbitration by companies in the consumer financial services arena. It is an attempt to overrule by regulation the Supreme Court’s landmark decision five years ago in AT&T Mobility LLC v. Concepcion (in which we represented AT&T). Businesses that are concerned about the ramifications of this proposal will have 90 days from the date the proposal is published in the Federal Register to submit comments to the agency, and if a rule is adopted in the present form of the proposal, parties are certain to seek judicial review.

Continue Reading The CFPB’s Proposed Anti-Arbitration Rule

The day after we released our study (pdf) of class action litigation, the Consumer Financial Protection Bureau issued some preliminary results in connection with its study of arbitration under the Dodd-Frank Act. (That statute gives the CFPB power to regulate or prohibit the use of arbitration agreements by the businesses it oversees, but requires the Bureau first to conduct a study of arbitration agreements.)

The agency repeatedly describes the information that it reports as “preliminary” and subject to further review and revision, and states that the subjects covered are those as to which it has been able to gather information—and does not indicate “the relative importance of different areas to be covered in the statutory report.”

These disclaimers are important, because the “preliminary results” provide little information that is relevant to the central questions that the Bureau must address: For the kinds of injuries that most consumers can suffer, what is the real-world accessibility, cost, fairness, and efficiency of arbitration as compared to suing in court? And how will consumers be harmed if arbitration is prohibited or subjected to regulation that eliminates arbitration’s availability?

Most of the CFPB’s preliminary results relate to the numbers of cases filed in arbitration and in court. But the number of formal claims filed by consumers in arbitration and in court says nothing about the relative accessibility and fairness of the two methods of dispute resolution. Indeed, consumers’ claims often are resolved before the filing of a formal arbitration proceeding—and all of those resolutions aren’t counted under the Bureau’s approach.

The Bureau also briefly discusses the results of a group of eight class actions, but that small, specially-selected sample provides no basis for any conclusion regarding the overall value of class actions to consumers—as the Bureau itself acknowledges by stating that it intends to study—among other areas that it has not yet addressed—“the disposition of cases across arbitration and litigation (including class litigation), both in terms of substantive outcomes and in terms of procedural variables like speed to resolution.”

A more comprehensive discussion of the CFPB’s preliminary results report is available here (pdf).

We’ve been reporting on the constitutional challenge to President Obama’s recess appointments to the National Labor Relations Board, which has serious implications for the recess appointment of Consumer Financial Protection Bureau head Richard Cordray. Yesterday, the Supreme Court granted the government’s unopposed petition for a writ of certiorari from the D.C. Circuit’s decision in Noel Canning v. NLRB.

The Court granted review of three questions:

  • Whether the President’s recess-appointment power may be exercised during a recess that occurs within a session of the Senate, or is instead limited to recesses that occur between enumerated sessions of the Senate.
  • Whether the President’s recess-appointment power may be exercised to fill vacancies that exist during a recess, or is instead limited to vacancies that first arose during that recess.
  • Whether the President’s recess-appointment power may be exercised when the Senate is convening every three days in pro forma sessions.

The government’s certiorari petition had raised the first two questions; the third was suggested by the respondent.

We’ve blogged about the D.C. Circuit’s ruling in Noel Canning v. NLRB (pdf) that President Obama’s three 2012 recess appointments to the National Labor Relations Board are unconstitutional. The consequence of that decision was to invalidate the NLRB decision against Noel Canning for lack of a quorum of NLRB members. The decision also cast a dark cloud over many other NLRB decisions, as well as the recess appointment of Consumer Financial Protection Bureau head Richard Cordray.

As we mentioned, the Solicitor General already filed a petition for certiorari in Noel Canning. The National Chamber Litigation Center has just filed a brief in response—the first time that Chamber lawyers have ever directly represented a member company before the Supreme Court.

The Chamber’s brief (pdf) agrees that the D.C. Circuit’s decision is worthy of Supreme Court review, and explains why the D.C. Circuit’s decision should be upheld.

Under the current schedule, the Supreme Court will consider the petition during the June 20, 2013 conference and possibly act on it in the orders list on June 24. If the Solicitor General waives the right to file a reply brief, however, the petition could be resolved a week earlier, on June 17.

In related news, in another case, the Third Circuit agreed with the D.C. Circuit’s conclusion that the Constitution permits recess appointments only during “intersession breaks”—that is, during periods between sessions of the Senate. As with the 2012 recess appointments at issue in Noel Canning, the 2010 recess appointment at issue in the Third Circuit case, NLRB v. New Vista Nursing & Rehabilitation (pdf), was made during a break in the middle of a session. Judge Smith wrote the decision, which Judge Van Antwerpen joined. Judge Greenaway dissented. Presumably, the Solicitor General will file a petition for certiorari in New Vista asking that the case be held pending the outcome of Noel Canning.

We’ve previously written about the D.C. Circuit’s decision in Noel Canning v. NLRB, which held that President Obama’s three recess appointments in 2012 to the National Labor Relations Board (NLRB) are unconstitutional. The Solicitor General has just filed a petition for certiorari, asking the Supreme Court to review the D.C. Circuit’s decision.

The Obama administration’s decision to seek Supreme Court in Noel Canning is unsurprising. By invalidating the recess appointments to the NLRB, the D.C. Circuit’s decision undermines every action by the NLRB since those appointments were made on January 4, 2012. The decision also casts a dark shadow over actions since that date by the Consumer Financial Protection Bureau (CFPB), because the CFPB’s director (Richard Cordray) received a recess appointment at the same time as the three NLRB members whose appointments are at issue in Noel Canning. For more details, please see our report on the D.C. Circuit’s decision in Noel Canning.

Barring extensions, the opposition to the certiorari petition is due May 28, 2013. Because of the timing of the filing of the petition, the Supreme Court ordinarily would not consider whether to grant review until after the summer recess, during the Court’s first conference in late September 2013. It is possible that the response to the petition could be filed early, however, in order to enable the Court to make the certiorari decision before its summer break.

UPDATE (4/29/13):  According to an article in Reuters, Noel Canning won’t oppose Supreme Court review:

Gary Lofland, the Seattle attorney representing Noel Canning, said they would encourage the court to take the case.
“We believe that it’s important that the court resolve this issue because it provides a better certainty to the business community,” Lofland said in an interview.

Hat tip: Volokh Conspiracy.

 

On January 25, 2013, the D.C. Circuit held in Noel Canning v. NLRB (pdf) that President Obama’s three recess appointments last year to the NLRB are unconstitutional.  The decision casts a shadow over every action taken by the NLRB since those appointments were made on January 4, 2012.  Moreover, because Richard Cordray received a recess appointment to head the Consumer Financial Protection Bureau (CFPB) on the same day, the DC Circuit’s decision provides grounds for challenging certain CFPB actions.  Please see our report on the DC Circuit’s decision and the implications for challenges by companies to agency actions.