Experts Disagree Over Whether Earth is Flat and CFPB Has Power to Regulate Arbitration Clauses

by Jeff Sovern

Did Congress give the CFPB the power to ban or regulate arbitration clauses in consumer financial contracts?  Not according to a Pepper Hamilton partner, according to a pair of recent reports.  Here's an excerpt from a piece at The CFPB’s Arbitration Ban Could Be the Next Supreme Court Showdown:

“It comes down simply to whether the (bureau) can now make rules that run directly counter to clear Supreme Court findings [interpreting the Federal Arbitration Act],” said Matt Adler, a law professor at the University of Virginia and chair of the arbitration practice at Pepper Hamilton law firm.

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Now comes the CFPB, offering its own ban on class-action waivers — seemingly in direct contradiction of these Supreme Court rulings.

“It’s really going to come down to whether an agency rule can overcome those cases. There’s absolutely going to be test litigation,” Adler said.

His opinion was clear-cut — absent an explicit amendment to the 1925 Federal Arbitration Act, the CFPB rule won’t survive.

“I think you’re going to need a Congressional Amendment,” he said. “The court will most certainly not roll over in face of an agency rule.”

And here's what an American Banker article, Fierce Battle Ahead for CFPB Arbitration Plan, had to say:

Matthew Adler, a partner at Pepper Hamilton, said a 2013 Supreme Court decision in a case involving American Express made it difficult to invalidate such arbitration clauses without a legislative amendment to the Federal Arbitration Act. Adler said the provisions in the Dodd-Frank do not go that far.

"It's going to be very difficult, without Congress amending the Federal Arbitration Act to invalidate class action waivers, for an administrative agency to do that on its own," said Adler.

As any first-semester law student knows, the starting place to answer a question involving a statute is the statute itself. So let's go to the Dodd-Frank Act, 12 USC § 5518(b):

The [Consumer Financial Protection] Bureau, by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties . . . .

I cannot imagine how that statute could be interpreted so as not to give the CFPB the power to "prohibit or impose conditions or limitations" on arbitration clauses in contracts within the Bureau's jurisdiction.  Because Dodd-Frank was enacted decades after the FAA, it is obvious that Dodd-Frank was intended to supersede the FAA as to the authority Dodd-Frank grants the Bureau.  Put another way, Dodd-Frank amends the FAA. As a result, it takes precedence over cases, even decided by the Supreme Court, interpreting the FAA, just as any congressional amendment to a statute can overturn Supreme Court decisions interpreting the statute in question–as has happened many times. 


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