51-50 Vote Defeats Rule Banning Mandatory Arbitration

Securities Law Alert

The Senate passed the Congressional Review Act (CRA) resolution Tuesday night, with Vice President Pence casting the deciding 51st vote. The resolution overturned the Consumer Financial Protection Bureau (CFPB) rule that would strike mandatory arbitration clauses from certain financial contracts and open the door to class action litigation.  The Senate voted primarily along party lines, with Republican Senators Lindsey Graham (SC) and John Kennedy (LA) voting against the resolution.  The resolution now goes to the President for signature.

Under the CRA, once the rule is disapproved, the issuance of another rule in substantially the same form is preempted unless specifically authorized by law enacted after the date of the disapproving resolution, ie, sometime after the President signs off.  Such a law seems unlikely in the current climate.

This is the fourteenth time that GOP lawmakers have invoked procedures under the Congressional Review Act to undo rules from the Obama Administration.  This latest action against the CFPB’s rule making authority is just the latest attempt to weaken the Dodd-Frank Act, with more likely to follow.