An appellate lawyer who is likely to figure prominently in the anticipated challenge to the Consumer Financial Protection Bureau’s arbitration rule took aim at the new regulation Wednesday, saying it was “not rooted in reality” and showcased the pitfalls of insulating an agency from the political process.
Speaking at an event hosted by the U.S. Chamber of Commerce, Mayer Brown partner Andy Pincus said it was “quite an extraordinary moment to see this agency, notwithstanding the election, six months into the new administration, issue this very dramatic and far-reaching rule,” which bans arbitration agreements that prevent consumers from banding together to file class actions.
“One of the things we looked at, in fact, is how unusual is it for an independent agency to issue such a far-reaching rule so far into the administration of a new president when the agency has no representation appointed by that new president. And the answer is it doesn’t ever happen,” Pincus said. “Even the agencies like the NLRB that remain controlled by a majority of Democrats are not engaging in dramatic new policymaking. They’re respecting the results of the election and the political process.”
In November 2010, Pincus argued on behalf of AT&T in a Supreme Court case in which the justices, ruling 5-4, established that companies could use arbitration agreements to forbid consumers from joining together for class actions. Since the court’s 2011 decision, in AT&T v. Concepcion, arbitration agreements have proliferated.
More recently, as the CFPB and other agencies took steps under the Obama administration to restrict arbitration, Pincus has worked closely with the U.S. Chamber of Commerce on the issue. Last month, he filed an amicus brief for the U.S. Chamber urging the Supreme Court to rule that workplace arbitration agreements with class-action waivers do not violate federal labor law. In May 2016, the same month the CFPB proposed its ban on class-action waivers in arbitration clauses, Pincus appeared before the House Financial Services Committee to testify against the rule on the U.S. Chamber of Commerce’s behalf.
“Andy has been one of the leading litigation strategists in defense of forced arbitration in the Supreme Court and in other venues. He’s a talented lawyer, and I wish he would join our side,” said Deepak Gupta, a former CFPB enforcement attorney and founding principal at Washington’s Gupta Wessler, who argued against Pincus in the AT&T v. Concepcion case.
Pincus’s work for the U.S. Chamber has taken on the CFPB in other contexts. Last year, he filed an amicus brief for the U.S. Chamber of Commerce to help the financial services company J.G. Wentworth LLC fight an administrative subpoena from the CFPB. The agency withdrew its subpoena—known as a civil investigative demand—in June.
Echoing remarks he made before the House Financial Services Committee last year, Pincus on Wednesday said the CFPB based its rule on a flawed arbitration study. The rule is set to take effect in 60 days and will apply to contracts entered into more than 180 days after that date.
“I think, given the vast number of companies that are going to be subject to this rule, it probably is not going to be enough time, and that’s going to obviously make the cost of compliance much greater,” Pincus said.
The rule will effectively do away with a “user-friendly” form of dispute resolution for consumers, Pincus said. Corporations, he said, typically pay “all or virtually all” of the fees associated with arbitration. “That’s obviously not true in court,” he said.
“If you say to the company, ‘Oh, we’re going to force you back into the class-action system with its huge, huge defense costs, the rational corporate decisionmaker is going to say, Well, you’re forcing me to bear these mandatory costs over here. I’m not going to pay twice. So you’re forcing me to get rid of the arbitration system,” Pincus added. “So in the real world … arbitration will go away if the CFPB’s rule takes effect. That’s just the rational corporate decision.”
Pincus is considered likely to lead any legal challenge to the arbitration rule. But that court challenge may not be necessary.
After the CFPB issued the final rule on July 10, GOP lawmakers including Sen. Tom Cotton and U.S. Rep. Jeb Hensarling, chairman of the House Financial Services Committee, almost immediately called for Congress to mount a challenge under the Congressional Review Act—a legislative tool that Republicans have wielded so far this year to wipe out more than a dozen Obama-era regulations.
At the chamber event Wednesday, Cotton said he believes every Republican member of the Senate banking committee will co-sponsor a Congressional Review Act resolution to undo the CFPB’s arbitration rule. With Wednesday’s publication of the rule in the Federal Register, Congress has a 60-legislative-day window to challenge the rule.
Cotton said he plans to “do all I can to repeal this regulation in the next three weeks of this congressional session.”
“Since President Trump came into office, Congress has used [the Congressional Review Act] 14 times to repeal midnight Obama regulations,” Cotton said. “And that’s our plan now.”