AFSA Opposes Arbitration Rulemaking
Today, AFSA joined a coalition letter urging the CFPB to deny the recent Petition for Rulemaking that would establish regulation banning pre-dispute arbitration provisions in contracts for consumer financial services. AFSA opposes new CFPB rulemaking in this space because arbitration reduces transaction costs and enables fair, speedy, and efficient dispute resolution, thereby providing significant advantages to consumers, businesses, and the public at large. The letter highlights five overarching reasons why the Bureau should deny the Petition.
- The Congressional Review Act (“CRA”) bars the proposed rule. In 2017 Congress disapproved of previous anti-arbitration rulemaking and given that the proposed rule is “substantially the same,” it is invalid.
- The CFPB lacks the statutory authority to promulgate Petitioners’ proposed rule. Section 1028 of the Dodd-Frank Act requires the CFPB to conduct a study before attempting to regulate pre-dispute arbitration, and the CFPB must demonstrate that any regulation that it proposes is “consistent with the study,” in addition to demonstrating that the regulation is “in the public interest and for the protection of consumers.” However, this proposed rule would skip this step, and instead rely on an outdated 2015 study.
- The proposal also runs afoul of the Federal Arbitration Act (FAA) itself. The proposal rests on an impermissibly hostile view of arbitration that contradicts the FAA and the Supreme Court’s recognition “that the FAA was designed to promote arbitration” and that the FAA mandates placing “arbitration agreements on equal footing with all other contracts.”
- The Administrative Procedure Act bars Petitioners’ proposal, which would result in arbitrary, capricious, and irrational agency action. Petitioners’ proposal is based on the demonstrably false premises that arbitration harms consumers and that the use of arbitration to resolve disputes makes companies more likely to violate federal laws.
- The CFPB lacks the authority to promulgate Petitioners’ proposed rule because its funding structure is unconstitutional, as the Fifth Circuit recently held in Community Financial Services Association of America, Limited v. Consumer Financial Protection Bureau.
November 14th, 2023
