Earlier this week, CFPB Director Richard Cordray acknowledged the possibility that the Bureau’s arbitration rule could be rolled back by a CRA vote but claimed that he did not factor Congressional opposition into his decision to release the final rule. Cordray explained, “My obligation as the director of the consumer bureau is to act for the protection of consumers and in the public interest. In deciding to issue this rule, that is what I believe I have done.”
By issuing the final arbitration rule despite the potential for Congress to nullify the rule, Cordray and the CFPB have shown a willingness to proceed with rulemaking activity even in the face of considerable political opposition.
Observers believe that Cordray’s impending departure as CFPB Director likely played a role in his decision to release the arbitration rule despite a CRA vote or potential litigation. Similar logic would apply to a final payday rule. Because it is unlikely that the next CFPB Director will issue many new regulations, Cordray has limited downside by publishing a final arbitration or payday rule before his term as Director expires. Either the rules survive a CRA challenge, creating a lasting legacy for Cordray and the Bureau, or Congress overrides one or both of them and consumers are left in essentially the same position as they would have been if the rules weren’t issued at all.
In a column for Law360 titled, Arbitration Rule Shows CFPB Unafraid of Payday Reg Fight, Evan Weinberger lays out the reasons why a payday rule that not long ago seemed unlikely to be finalized any time soon, is suddenly just around the corner.
Now that the CFPB has shown that it is not afraid of a potential CRA vote that would invalidate a key rule, the bureau may want to make another public fight out of a rule that would put restrictions on payday and other small-dollar, short-term loans, said Benjamin Olson, a partner at Buckley Sandler LLP and a former deputy assistant director in the CFPB’s office of regulations.
Among the many reasons that the CFPB would seek to get a payday lending rule out before Trump either fires Cordray — a move that could happen depending on the outcome of a D.C. Circuit case about the bureau’s constitutionality — or his term expires in July 2018 is that the CFPB may not want to essentially nullify itself.
A Trump-appointed CFPB director is unlikely to want to move forward with a payday lending rule or regulation banning the use of class action bans in mandatory arbitration agreements, as the rule released Monday does.
If the CFPB does not bring out a payday lending rule before Cordray is out of office, it will not be out of fear that the rule will be rejected by Congress. Instead, it would be because the bureau simply runs out of time to finish the complex regulation, Olson said.
Isaac Boltansky, an analyst with Compass Point Research & Trading, believes that a battle in Congress is “unlikely to sway the CFPB away from releasing its payday lending rule.” Here’s an excerpt:
We believe the CFPB’s finalization of its mandatory arbitration rule serves as a clear signal that it will push to finalize its payday/small dollar loan rule before the end of Director Cordray’s term. Even if the mandatory arbitration rule is reversed via CRA, we firmly believe there are not the necessary votes in the Senate for a CRA reversal of a final payday lending rule.
Ronald Rubin, a former CFPB enforcement attorney sees things a little differently. Here’s an excerpt from a Bloomberg Law article titled, Will Cordray Make Push on Payday, Arbitration Rules Before Exit?, which features the following quote from Rubin:
“There’s no way the rules Cordray wants would survive the Congressional Review Act,” said Ronald L. Rubin, a former CFPB enforcement attorney, now a writer whose pieces focus on the bureau. “Why would he pass something that’s never going to become a rule, and would just give the administration a reason to fire him?