Timothy A. Raty
On July 25, 2017, the House of Representatives passed H.J. Res. 111 (2017), which states the following:
“Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That Congress disapproves the rule submitted by the Bureau of Consumer Financial Protection relating to ‘Arbitration Agreements’ (82 Fed. Reg. 33210 (July 19, 2017)), and such rule shall have no force of effect.” (see https://www.congress.gov/bill/115th-congress/house-joint-resolution/111/text)
This is the first time such a resolution has been issued against the CFPB and, if successful, may not be the last.
“Congressional Review Act”
Colloquially referred to as the “Congressional Review Act”, Congress’ authority to disapprove of administrative laws (also colloquially known as “doing a CRA”) was signed into law by President William J. Clinton (D-AR) as Section 251 of the “Contract With America Advancement Act of 1996” (110 Stat. 847), which enacted a new Chapter 8 to Title 5 of the U.S. Code (5 USCA §§ 801 through 808). Under Ibid. § 801(b)(1), a Federal agency’s rule “shall not take effect (or continue), if the Congress enacts a joint resolution of disapproval.” If “any rule that takes effect and later is made of no force or effect by enactment of a joint resolution under section 802 shall be treated as though such rule had never taken effect.”
To disapprove, a joint resolution must be referred to committees of both the House of Representatives and the Senate (Ibid. § 802[b]). Notably, special provision is made for consideration of a joint resolution by the Senate, where “debatable motions and appeals [on the resolution] shall be limited to not more than 10 hours, which shall be divided equally between those favoring and those opposing the joint resolution” and “an amendment to, or a motion to postpone, or a motion to proceed to the consideration of other business, or a motion to recommit the joint resolution is not in order” (Ibid.§ 802[d]) – effectively making it “filibuster proof.”
Upon passage of the joint resolution by both bodies, the resolution is then presented to the President of the United States for either approval or vote, in similar fashion as any typical bill: The President can approve it or allow it to sit 10 days while Congress is in session and become “approved” without signature. The President can also veto it directly or “pocket-veto” it, in which case Congress can override the veto with a 2/3rds majority in each House.
If a joint resolution is enacted, “a rule that does not take effect (or does not continue) . . . may not be reissued in substantially the same form, and a new rule that is substantially the same as such a rule may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.” (Ibid. § 801[b])
CFPB’s Arbitration Rule
The CFPB’s “Arbitration Rule” was issued on July 10, 2017 and published in the Federal Register on July 19th (82 FR 33210 ; see https://www.federalregister.gov/documents/2017/07/19/2017-14225/arbitration-agreements). Despite rumors to the contrary, the final “Arbitration Rule” does apply to mortgage lenders, as it applies to “an ‘extension of credit’ that is a ‘consumer credit’ when performed by a ‘creditor’ as those terms are defined in Regulation B, 12 CFR 1002.2” (pending 12 CFR § 1040.3[a][i]; see 82 FR 33428 ) No exceptions are made to specifically carve out mortgage loans or creditors who extend mortgage loans (see pending Supra § 1040.3; see Ibid.). Granted, the anti-arbitration agreement provisions of 12 CFR § 1026.36(h) do – as a matter of application – supersede the “arbitration rule’s” provisions (which does not prohibit arbitration agreements, but does require that such agreements allow consumers the ability to enter into class action lawsuits in lieu of arbitration, if desired); however, Ibid. only applies to a “consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer’s principal dwelling)” (Ibid. § 1026.36[h]). It does not apply to open-end consumer credit transactions (see Ibid. § 1026.36[b]), to HELOCs secured by dwellings other than a principal dwelling, or other mortgage loan transactions which are exempt from Regulation Z (e.g., a loan where there is no finance charge and four or less payment installments; see Ibid. § 1026.1[c][iii])
Less than three weeks after it was issued, this “Arbitration Rule” has already felt one of the three blows necessary to “axe it.” A vote to approve of the joint resolution is pending the Senate, where it is highly expected to pass along largely partisan lines, like it did in the House (231 Republicans approving, 189 Democrats and 1 Republican disapproving; there are 52 Republicans in the Senate, 46 Democrats, and 2 independents who caucus with the Democrats). It is also highly expected that, if it passes the Senate, President Donald J. Trump (R-NY) will approve it.
Congressional Review Act and the CFPB
Between the Republican White House switching sides and supporting the plaintiffs in the appeal to PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1 (D.C. Cir. 2016), as well as the passage of H.R. 10 (2017) (the “Financial CHOICE Act of 2017”) by the House of Representatives, it is clear that the powers-that-be are presenting challenges to the CFPB’s powers – as can be expected, considering how independent the CFPB is from oversight.
By successfully utilizing “a CRA” to nullify the Bureau’s “Arbitration Rule” with minimal (or no) political blowback, a “CRA” may become a reliable tool for checking the Bureau’s rulemaking powers. It is more efficient than both litigating over such powers (like PHH Corp., which is pending an en banc appeal and may, ultimately, be decided by the Supreme Court) and amending them (like the “Financial CHOICE Act of 2017,” which can be filibustered in the Senate – assuming the Senate even attempts to vote on it, rather than crafting their own equivalent to vote on).
“A CRA” has not been used much over the past twenty-one years, largely because the President must agree to disagree to a rule that a Federal agency under the President’s direction passed. However, due to the near complete independence of the CFPB from the Presidency (particularly the fact that the Director of the Bureau, who sets its policies, cannot be fired at will and replaced by the President), it’s quite possible more “CRA’s” will be utilized, until either the CFPB’s structure is reformed or there is a change of perspective on the Bureau in Congress and/or the White House.
For the mortgage industry, this means that caution must be taken when implementing new rules issued by the Bureau, as it is possible that whatever changes are implemented may need to be reversed, upon the will of Congress and (potentially) the President.