On December 6, 2017, the Financial Industry Regulatory Authority (“FINRA”) issued Regulatory Notice 17-42 requesting comment on proposed amendments to the FINRA Codes of Arbitration Procedure relating to requests for expungement of customer dispute information.  FINRA Rule 2080 currently governs a member or associated person’s request to expunge information from the Central Registration Depository (“CRD”)

On September 29, 2017, a coalition of bank and trade associations filed a federal court challenge to the Consumer Financial Protection Bureau’s (“CFPB” or the “Bureau”) arbitration rule. The industry group plaintiffs allege that the arbitration rule is illegal on four grounds, including that the CFPB’s actions are unconstitutional, and that the Bureau violated the Administrative Procedure Act (“APA”) in conducting and interpreting the arbitration study it used to justify the rule.

The Bureau published its final arbitration rule in July. As we have explained previously, the regulation would generally prohibit financial services businesses from including arbitration clauses in consumer contracts unless those arbitration clauses expressly permit class actions to proceed in court. In reaching the conclusion that the arbitration rule was justified, the CFPB relied on a study it conducted on the effects of consumer arbitration clauses in the financial services industry.

The lawsuit argues that the district court should invalidate the arbitration rule on four grounds:

  1. The structure of the Bureau, with its single director removable only for cause, is unconstitutional, and this unconstitutionality “fatally infected” the passage of the rule. This constitutional argument has been previously raised in the PHH case, which we have previously discussed.
  2. The Bureau’s study into the effects of mandatory arbitration does not properly support the rule under the APA,  because it improperly limited public participation, used improper methodologies, misconstrued the data, and did not address additional essential considerations.
  3. The Bureau’s interpretation of this study also violated the APA because its conclusions ran counter to the factual record the Bureau developed, and thus was arbitrary and capricious.
  4. Adoption of the arbitration rule violated the directive of the Dodd-Frank Act to implement a rule limiting the use of consumer arbitration clauses only if such a rule was in the public interest and advanced consumer welfare. Along similar lines, the Office of the Comptroller of the Currency recently published a report indicating that the arbitration rule would increase credit costs for consumers.

Continue Reading Industry Coalition Challenges CFPB Arbitration Rule in Court

A recent poll — conducted by Lake Research Partners and Chesapeake Beach Consulting on behalf of Americans for Financial Reform and the Center for Responsible Lending — appears to show substantial public support for the Consumer Financial Protection Bureau (CFPB) and a number of its recent regulatory initiatives.  The published poll results reflect, among other things, that:

  • 91% of Americans believe that it is important to “regulate financial services and products to make sure they are fair for consumers,” and substantial majorities support “tougher rules and enforcement” and increased regulation of financial companies;
  • 74% of Americans support the 2010 Dodd-Frank act, and an almost equal number (73%) support the CFPB; and
  • Most Americans support recent CFPB regulatory initiatives, including the CFPB’s ban on mandatory pre-dispute arbitration clauses in contracts for consumer financial services (66%).

This last result is particularly notable, as it could influence Congressional willingness to overrule the Bureau’s arbitration rule pursuant to the Congressional Review Act (see our client alert, at page 3, for more details).

But the poll’s results are not as unambiguous as they seem at first glance, and policymakers should be cautious in relying on them.  Some of the support for the CFPB and CFPB policies reflected in the results could be ascribed to the way the pollsters asked their questions.

Continue Reading Public Support for the CFPB and its Arbitration Rule — Is The Evidence Clear?