UPDATED: Pence’s tiebreaking Senate vote halts CFPB’s arbitration rule


While the agency director expressed his disappointment, dealerships and auto finance companies can breathe a big sigh of relief; Congress has stopped the Consumer Financial Protection Bureau’s arbitration rule.

With Vice President Pence casting the deciding vote late on Tuesday night, a Congressional Review Act resolution gained approval in the evenly divided U.S. Senate, overturning the CFPB arbitration rule prohibiting the use of class action waivers in arbitration clauses.

The U.S. House of Representatives voted to abolish the CFPB’s rule in July. The Congressional Review Act states that once the resolution is passed by both chambers of Congress and signed by the president, the rule under debate is repealed and substantially similar rules can only be reissued with specific legislative authorization.

Industry cheers came from the industry not only near Capitol Hill, but also by those leaders gathered for the Fall BHPH Conference hosted by the National Alliance of Buy-Here, Pay-Here Dealers — especially from the National Independent Automobile Dealers Association.

NIADA chief executive officer Steve Jordan emphasized how the action put the interests of consumers ahead of class action lawyers

”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,” Jordan said in a statement shared first with SubPrime Auto Finance News. “This rule was nothing more than a boon to class action lawyers levied on the backs of America’s hard-working consumers.”

“Arbitration has proven to be a faster, less expensive and more effective means of resolving consumer disputes than class-action lawsuits,” Jordan continued. “And consumers who receive an award in arbitration almost always receive more than they would in a class-action lawsuit, a point proven by the CFPB's own research.”

Meanwhile, back inside the Beltway, CFPB director Richard Corday called the Senate development ​"a giant setback for every consumer in this country. Wall Street won and ordinary people lost." 

In a message sent to SubPrime Auto Finance News, Cordray continued by saying, "This vote means the courtroom doors will remain closed for groups of people seeking justice and relief when they are wronged by a company. It preserves a two-tiered justice system where banks can have their day in court but deny their customers the same right. It robs consumers of their most effective legal tool against corporate wrongdoing.

"As a result, companies like Wells Fargo and Equifax remain free to break the law without fear of legal blowback from their customers. I urge President Trump to stand with consumers and veto this resolution," Cordray went on to say.

NIADA and its membership actively advocated against the rule — including at its recent National Policy Conference — encouraging the Congress to take the action voted on yesterday.

The association explained that the rule, which took effect Sept. 18, was meant to steer more consumer disputes into class-action litigation rather than arbitration, which benefits class-action lawyers at the expense of the consumers, especially those who are the most-credit challenged.

According to the study on which the CFPB said it based the rule, 87 percent class action cases provided no benefit to the consumers involved, and in the ones that did, the average payout was a mere $32. The trial attorneys, meanwhile, recouped millions of dollars in fees. Financial relief for consumers in arbitration cases averaged more than $5,000.

And arbitration is up to 12 times faster and is less expensive than litigation, according to the research.

The Senate resolution, which is identical to a resolution that passed the House of Representatives in July, now heads to the White House where President Trump has indicated he will sign it.

NIADA senior vice president of legal and government affairs Shaun Petersen, who along with Jordan are among the industry leaders set to speak during Used Car Week, praised Senate leadership for Tuesday night’s action.

“We applaud Senator (Mike) Crapo and Senator (Mitch) McConnell for their efforts to shepherd this resolution through the Senate chamber,” Petersen said. “Their leadership in getting this resolution passed ensures consumers will continue to reap the benefits of arbitration while preventing the inevitable increase in credit costs that would have come.”

And the organizations that primarily are associated with finance providers applaud the Senate actions, too.

“We’re pleased to see the Senate has chosen to side with consumers instead of trial attorneys when it comes to arbitration,” American Financial Services Association president and chief executive officer Chris Stinebert said in a statement sent to SubPrime Auto Finance News.

“Class action lawsuits take years to be heard, clog the courts, and result in comparatively small payouts for consumers,” Stinebert continued. “By contrast, disputes settled by arbitration result in quick decisions and pay-outs for consumers that average higher than class action settlements.”

The Consumer Bankers Association shared a similar reaction.

“The Senate acted to protect consumers with this vote,” CBA president and CEO Richard Hunt said. “Overturning the CFPB’s arbitration rule ensures consumers retain the tools they need to receive relief without going through long, drawn-out, costly court proceedings — where no one benefits except trial lawyers. The CFPB’s own study even verifies arbitration is more effective when it comes to helping consumers.

“This rule was ill-conceived, based on an incomplete study and did not fulfill the Bureau’s goal of protecting consumers,” Hunt continued.

“We thank (Senate Banking Committee chairman Mike Crapo) for his work in the U.S. Senate as well as (House Financial Services chairman Jeb Hensarling) and Congressman (Keith) Rothfus for their efforts in the House of Representatives on this important consumer matter,” Hunt went on to say.

Like NIADA, CBA officials pointed out the bureau’s own study shows the average consumer receives $5,400 in cash relief when using arbitration and just $32 through a class action suit. The trial lawyers managing these cases, however, have received approximately $424 million, an average of more than $1 million per case.

Before the vote tally arrived late on Tuesday, five national organizations including AFSA and CBA along with a coalition of associations located throughout Texas filed a legal challenge on Sept. 29 to the CFPB’s arbitration rule.

The vote also came just ahead of the U.S. Treasury Department releasing a report on Monday that examined the CFPB’s arbitration rule. The Treasury report delves into the analysis CFPB used to prohibit mandatory arbitration clauses.

Treasury officials explained their report outlined important limitations to the data behind CFPB’s rule and explained that CFPB did not appropriately consider whether prohibiting arbitration clauses would advance consumer protection or serve the public interest.

The Treasury report also found that:

—The CFPB’s rule will impose extraordinary costs—generating more than 3,000 additional class action lawsuits over the next five years, imposing more than $500 million in additional legal defense fees, and transferring $330 million to plaintiffs’ lawyers.

—The CFPB’s data show that the vast majority of class action lawsuits deliver no relief to the class — and that consumers very rarely claim relief available to them.

—The CFPB did not show that its rule will achieve a necessary increase compliance with the federal consumer financial laws, despite the rule’s high costs

“The CFPB failed to consider less onerous alternatives to its ban on mandatory arbitration clauses across market sectors,” Treasury officials added about their report that’s available here.