by Jeff Sovern
I am grateful to Alan Kaplinsky for commenting on two of my earlier posts, Whither Arbitration Regulation? and Why the CFPB is right that it can act against discrimination using its unfairness power. One of Alan’s posts is titled Why the CFPB’s expansion of its UDAAP authority to target discrimination requires rulemaking. In the other post, Don’t hold your breath, Professor Sovern!, Alan wrote, in response to my urging the CFPB to issue a new arbitration regulation:
Director Chopra already has a very robust agenda for the CFPB. Among other things, that includes rulemakings under Section 1071 of Dodd-Frank (small business loan data collection) and Section 1033 of Dodd-Frank (consumer access to data). Both of these rulemakings are very complex and controversial. The CFPB does not have the bandwidth and resources to take up arbitration which would also undoubtedly be complex and controversial.
Put them together and you have Alan saying the Bureau shouldn’t (can’t?) use its unfairness power to combat discrimination unless it issues a regulation but that the Bureau is too busy to produce new regulations if they would be complex and controversial. Alan doesn’t say explicitly that a discrimination regulation would be complex and controversial, but the issues he raises suggest it would indeed be complex, and the Bureau’s claim that discrimination is unfair within the meaning of the Consumer Financial Protection Act has already aroused opposition within the industry. So, on Alan’s reasoning, the Bureau would not be able to promulgate a discrimination regulation any time soon and would not be able to use its unfairness power to fight discrimination in the meantime.
I agree that it is desirable for the Bureau to issue a discrimination regulation, but not exactly for the reasons Alan identified, and I don’t agree that the Bureau is disqualified from interpreting unfairness as embracing discrimination in the absence of such a regulation. A discrimination regulation would serve several desirable purposes. Among these: it would be persuasive authority for other UDAP statutes, such as the FTC Act and state UDAP statutes. It would also be more difficult for later administrations to abandon a regulation adopted after notice and comment, than changes in a supervisory manual, which a later director could rescind.
Alan also suggests that the Bureau could not issue an arbitration regulation unless it conducts a fresh arbitration study. This seems inconsistent with the text of the Dodd-Frank Act. That Act provides, in section 1028(a) , that the Bureau “shall conduct a study of” arbitration. The Bureau has conducted “a” study. Section 1028(b) states that “The findings in [an arbitration] rule shall be consistent with the study conducted under subsection (a).” In other words, as long as any arbitration rule the Bureau issues has findings consistent with its original arbitration study, the Bureau can issue the rule. Alan is right, though, that a new arbitration rule would take some time, which is why the Bureau needs to get going on it as soon as possible, if it has not already done so.