Pencils down. (Is the modern equivalent “cursors down”?) All the attorneys who were drafting new form consumer agreements to comply with the CFPB rule prohibiting class action waivers can now trash those documents. Pursuant to the Congressional Review Act, the Senate voted 51-50 last night (with the VP as tie-breaker) to nullify the CFPB’s rule. (The House of Representatives had cast a similar vote earlier this summer.) And President Trump has signaled he will sign the bill. But you already know all that. The news came out last night.
So, what’s next?
After deleting all the new draft agreement, of course. And I’m not being facetious about that. The rule required that new agreements be in effect by March 2018 and it takes large companies significant time to approve and roll out new consumer agreements, so many were already in the works. Especially since the Senate waited until almost the end of its 60 session day deadline to act. But, most large institutions would rather eat those attorneys’ fees than be the subject of new class action lawsuits, so they won’t complain.
There are many constituencies that are very unhappy with the U.S. Supreme Court’s interpretations of the Federal Arbitration Act. They are not going to give up just because 50 Senators disagree. Those constituencies had been largely unsuccessful in the federal courts in the last dozen years, but more successful in federal agencies in the last few years. Under the Obama administration, multiple agencies had issued rules limiting the use of arbitration with consumers and employers. All of those have been reversed in the first ten months of the Trump administration. Which leaves those who are still concerned about arbitration with a dilemma — how can they make change? Do they push for smaller legislative victories, adding riders to federal statutes so that claims brought under them must be heard in a court of law? That’s not a terrible idea, since the slimmest majority voided the CFPB rule. Or do they develop new, creative legal theories in state and federal courts? Theories like “wholly groundless” and that the FAA does not apply to motions to vacate in state court that nip at the edges of FAA jurisprudence? I think that is the most likely result.
What about those who are happy with this outcome, what’s next for them? I predict more companies will make use of class action waivers. In the last few years, with the proposed (and then actual) rule-making by various agencies, any move to add a class action waiver carried with it some risk that it would be soon made ineffective. But now, the Supreme Court and its conservative majority are firmly in favor of enforcing those class action waivers. And the federal agencies are also supportive of class action waivers. So, some of those companies who were kept on the fence by administrative action are likely to jump off and land on the side of adding class action waivers to their arbitration agreements.
I’d love to hear what you think may happen in arbitration law as a result of the Senate vote to trump the CFPB. Send me a line.