Seyfarth Synopsis: A somewhat bizarre event – even by this year’s standard of unusual current events – hit the news stream earlier this week, as two “Acting Directors” showed up to work on Monday morning at the U.S. Government’s Consumer Financial Protection Bureau, also known as the CFPB. In today’s vlog, Partner Jerry Maatman of Seyfarth Shaw, LLP gives our readers an explanation of the situation at the CFPB, discusses the agency’s significance for employers, and forecasts potential class action implications based on these developments.

Summary

The Consumer Financial Protection Bureau (“CFPB”) has been a controversial government agency since its authorization under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2011. Formed out of a post-2008 recession by then-Harvard Law Professor and current U.S. Senator Elizabeth Warren, the CFPB is designed – per its legislative history – to “protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law.” As of January 2017, this consumer-friendly agency had secured nearly $12 billion to 29 million consumers.

On Monday, November 27th, both Leandra English and Mick Mulvaney sent out emails to CFPB staff members claiming to be the Acting Director of the agency. This conflict stemmed from Richard Cordray, longtime Director of the CFPB, relinquishing his duties effective November 24 at midnight. Upon his departure, Cordray named English as the Deputy Director, on the assumption that she would assume leadership as Acting Director (and Cordray would block the White House from interfering). However, at the same time, President Trump used his federal appointment power under the Federal Vacancies Reform Act (FVRA) to name Mick Mulvaney as Acting Director. English subsequently filed a lawsuit seeking an injunction against President Trump and Acting Director Mulvaney in the U.S. District Court for the District of Columbia, but Judge Timothy Kelly ruled in favor of Trump and Mulvaney.

This week’s leadership debacle was not the only time the CFPB has been in the news recently. Last month, the U.S. Senate voted to repeal the CFPB’s Arbitration Rule by a narrow 51-50 vote. The existence of this broad rule effectively barred financial institutions from including a class action ban in their arbitration agreements with consumers. Similar to the agency itself, the Arbitration Rule was a strictly partisan issue. The Republican Party claimed that the rule allowed trial lawyers to “line their pockets” off unnecessary customer class actions and hurt American business. On the other side, Democrats argued that the repeal of this rule and ensuing limitations to the CFPB placed too much power in the hands of big business and hurt consumers.

As the vlog outlines, potential class action implications of this controversial agency are yet to be seen. Assuming that Acting Director Mulvaney remains in control at the CFPB, it is safe to say the agency he once called a joke “in a sick, sad way” is headed for a limitation in institutional reach and power. More importantly, though, the upcoming U.S. Supreme Court decisions regarding class action waivers in NLRB v. Murphy Oil USA, Inc. (No. 16-307), Epic Systems Corp. v. Lewis (No. 16-285), and Ernst & Young LLP v. Morris (No. 16-300) will have a profound impact on future class action litigation. One takeaway from this situation that cannot be debated, though, is Jerry’s final thought of the vlog. “We are living in interesting times these days.”

Today the Senate struck down a new Consumer Financial Protection Bureau (“CFPB”) rule which would have prohibited providers of financial products and services from including class action waivers in their arbitration agreements with consumers. The action is a win for the financial services industry.

Background

Way back in March 2015 we blogged about the CFPB’s study of pre-dispute arbitration contracts in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The CFPB’s study culminated in a Report to Congress which found that arbitration clauses were ubiquitous in consumer financial products and services agreements, that consumers were not aware and did not understand them and that such clauses were generally detrimental to consumers. Specifically, the CFPB found that the availability of class actions served to deter companies from engaging in potentially illegal activities, consumers tended to get more relief more often in class actions rather than in individual arbitration proceedings, and there was no evidence that arbitration and class action waiver provisions lowered costs for consumers.

In May 2016, the CFPB proposed a rule that would (1) “prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action;” and (2) require such providers to submit arbitral records to the CFPB. See Arbitration Agreements, 81 Fed. Reg. 100, 32830 (May 24, 2016) (to be codified at 12 C.F.R pt. 1040). The proposed rule would have covered financial products or services offered or provided for use by consumers primarily for personal, family or household purposes, or they are delivered, offered, or provided in connection with such products or services, such as debt collection. 81 Fed. Reg. 100, 32927.

Congressional Action

In July 2017, the House of Representatives voted 231-190 on a resolution to prevent the CFPB rule from taking effect. On October 24, 2017, the resolution came before the Senate for a vote and passed 51-50. Vice President Pence cast the tie breaking vote. The resolution now goes to President Trump for signature and, based on comments by the White House, he is expected to sign.

Implications

The death of the CFPB’s rule returns providers of financial services and products to the status quo. Providers are free to continue to include and enforce arbitration agreements and class action waivers in agreements with consumers. For more information, please reach out to a Seyfarth attorney or see our One Minute Memo.

WebinarOn Tuesday, May 26, 2015 at 12:00 p.m. Central, Jason P. Stiehl, Giovanna A. Ferrari and Jordan P. Vick will present the first installment of the 2015 Class Action Webinar series. They will provide a summary of key decisions from 2014, identify key trends for companies to watch for in 2015, as well as practical “best practices” and risk management for the future.

In 2014, companies saw a major change in the focus and risk of class action litigation. According to one industry survey, the percentage of class actions qualifying as “high risk” or “bet-the-company” tripled from 4.5 percent to 16.4 percent. This no doubt derives from the increase in volume of large settlements and continued increase in volume of suits under statutes with minimum statutory penalties, such as the Telephone Consumer Protection Act (TCPA).

The webinar will be provide insight on:

  • The landscape for in-house counsel, including identifying the legal market spend and risk for class actions
  • Case law and trends from 2014, including:
    • evolving class certification standards post-Comcast
    • increased scrutiny of class settlements
    • continued TCPA filings and large settlements
    • post-Concepcion waiver decisions and the CFPB’s arbitration study
    • standing and privacy/data breach cases
  • Highlights from 2015, including:
    • increase use of motion to strike class allegations
    • CAFA challenges
    • TCPA decisions
    • DirecTV Supreme Court arbitration case
    • International expansion of class action vehicle in Europe
  • Practical considerations and takeaways

register

Registration: there is no cost to attend this program, however, registration is required.

*CLE Credit for this webinar has been awarded in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

If you have any questions, please contact events@seyfarth.com.

CFPBOne of the largest issues to loom over the class action battlefield in the past decade has been the use of arbitration clauses in consumer contractual relationships.  As many know, and as discussed in our sister blog, Workplace Class Action Blog, the United States Supreme Court’s seminal 2011 decision in AT&T Mobility v. Concepcion became a guiding light for many businesses on how, and when, to utilize arbitration provisions in their agreements.   More recently, as discussed in a previous post, in 2013, the Court provided further guidance regarding waiver of class arbitration in American Express Co. v. Italian Colors Restaurant.  The debate since has raged between consumer advocacy groups and businesses that requiring consumers to arbitrate favors businesses and artificially limits recovery for consumers.  Silent in that debate, however, has been any empirical data to support the claim– until know.  On March 10, 2015, the CFPB released the final results of its consumer arbitration study.  Not surprisingly, the report is heavily critical of the arbitration process and supportive of allowing consumers to pursue claims in federal court using the Rule 23 class vehicle.

The Study

Section 1028 of the Dodd-Frank Act authorizes the Consumer Financial Protection Bureau (“CFPB”) to regulate or even eliminate arbitration provisions from consumer financial products and services agreements, if it determines such action is “in the public interest and for the protection of consumers.”  To that end, starting in 2012, the CFPB set about compiling data to support this goal.  The 728-page report analyzed nearly 850 consumer finance agreements, 1,800 consumer arbitration disputes, 3,400 individual federal court lawsuits, 42,000 credit card cases filed in small claims court and 420 class action settlements filed in federal courts.   The results, again heavily sloped in favor of meeting the initial objective, include the following findings:

  • Tens of millions of consumers are covered by mandatory arbitration agreements
  • Arbitration clauses were present in 53 percent of credit cards studied, 92 percent of prepaid cards and 86 percent of private student loan lenders
  • Approximately 600 arbitration were filed per year between 2010 and 2012 in six different consumer finance markets
  • There is no evidence that arbitration clauses lead to lower prices for consumers
  • Over 90 percent of the arbitration agreements studied contained class action waivers
  • Class action settlement provide substantially more relief to consumers than arbitration awards
  • Over 75% of consumers surveyed said they were not aware of arbitration clauses in their agreements
  • Less than 7% of consumers surveyed knew that arbitration clauses prevent them from suing

Conclusion

 In his “Chapters from My Autobiography,” Mark Twain wrote “Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, damned lies, and statistics.'”

While the CFPB’s omnibus study appears to be an extensive work, compiling years of data and thousands of data points, it must be remembered that the genesis of this study was to support the CFPB’s charge of regulating or even eliminating arbitration provisions from consumer financial products and service agreements.  Nonetheless, with this data, it seems inevitable that the next word we can expect to hear from the CFPB will be rulemaking efforts to effectuate this goal.  While it is unclear whether the CFPB intends to severely limit the use of arbitration provisions in consumer financial agreements or propose an outright ban of such provisions, it is certain that the landscape for consumer arbitration agreements and class action waivers will change significantly in the near future.

As always, we will continue to keep you abreast of these events as they unfold.