Republicans and the Consumer Financial Protection Bureau are playing a game of chicken over a proposal that would restrict banks, credit unions and other lenders from using mandatory arbitration clauses.
Republicans stand ready to deploy a rarely used legislative process called the Congressional Review Act if the CFPB finalizes the arbitration plan, which would ban clauses that prevent consumers from filing class action lawsuits against financial services companies.
The law is a powerful tool that allows Congress to overturn agency rules promulgated within the previous 60 legislative days. Because it requires only a simple majority to pass, it allows Republicans to avoid a potential filibuster from Democrats, making it far easier to enact.
"Any rule coming out of the CPFB would be subject to" the Congressional Review Act, said Richard Hunt, president and CEO of the Consumer Bankers Association. It's CFPB Director "Richard Cordray's decision to make, if he wishes to release [the arbitration rule] or not."
Some suspect the CFPB might be holding off on finalizing the rule for fear of congressional intervention. That's because the Congressional Review Act prevents a rule that is "substantially the same" from being written. As a result, if Congress did vote to reject the rule, it could scuttle years of CFPB work and limit future efforts to regulate arbitration agreements.
"The reason, at least so far Director Cordray has been reluctant to issue a final [arbitration] rule, is because I think he realizes that there is a very high likelihood of it being overridden," said Alan Kaplinsky, a partner at the law firm Ballard Spahr.
Cordray could shelve the rule until the climate in Washington is more accommodating for consumer-friendly regulations, but he may also view releasing the rule as a now or never proposition with Republicans doing their level best to defang the bureau or get rid of it altogether.
"I don't think anybody is arguing to halt the rulemaking," said Lauren Saunders, associate director at the National Consumer Law Center. "Congress can hold the rule in other ways as well, and holding off — all that does is lose all the good work that has gone forward."
There is also speculation that the Trump administration may try to replace Cordray before his term expires in 2018 with someone who would be hostile to the agency and the rulemaking.
Cordray has said he remains committed to the bureau's mission, and some observers believe he will move forward with the rule regardless of the political dynamic.
"Cordray is not someone who will sit on the sidelines and kowtows to political pressure," said Rohit Chopra, a senior fellow at the Consumer Federation of America and a former CFPB official.
It's also not a guarantee that the arbitration rule would be rolled back if it is released. "The agency has published hundreds of pages of research and data showing that it's time to make some fixes," Chopra said.
Lawmakers may simply not have enough time to roll it back. The Senate has been busy trying to get President Trump's cabinet confirmed as Democrats have slowed the process, making floor time to pass CRA resolutions and tackle other legislative business difficult to find.
It is "a very slow process," Senate Banking Committee Chairman Mike Crapo said last week, while pointing to the 30 hours of debate time that Democrats can demand for Trump nominations. "There are a lot of more recent rulemakings that the Republicans disagree with that they are now bringing forward under congressional review resolutions, and those take about five to eight hours each in the Senate. So we are trying to fit them in between nominations. But we can't use that 30 hours; we have to stay on the nomination for the 30 hours."
Lawmakers have also targeted other CFPB rules. Sen. David Perdue, R-Ga., is attempting to use the review act strategy to repeal a CFPB rule regulating prepaid cards. So far, however, Perdue has found little support for his efforts.
"We are not convinced anybody is really going to try and move that prepaid card CRA," Saunders at the National Consumer Law Center said. "Most of the prepaid card industry is just fine with the rule and getting ready to comply with it, and only one fringe issuer wants to save $80 million in overdraft fees. So I am not sure it is even going to come up for a vote, and we think we can get the votes to defeat it."
Consumer groups have pointed to Total System Services, which is headquartered in Georgia and owns one of the few prepaid card companies to offer overdraft services that were restricted by the CFPB rule, as the driving force behind the resolution. However, technology companies have also expressed concern about the rule.
"Some of the more high-tech firms were frustrated that they got roped into the rule," said Jason Oxman, CEO of the Electronic Transactions Association. "These products are still really new."
But the tech companies don't appear to have thrown their full heft behind the resolution yet, and the House likely will not bring a companion resolution to a vote until it gets a signal that there is an appetite for it in the Senate.
"I don't detect a lot of industry pressure to override that rule," Kaplinsky said.
Brian Knight, a senior research fellow for the financial markets working group at the Mercatus Center, said using the Congressional Review Act for the "prepaid rule would be consistent with the general Republican frustration with the CFPB…and a way for them to start unwinding at least as much as possible some of the regulations they viewed as being unduly onerous or philosophically inappropriate."
That frustration would likely build if the CFPB were to release a final arbitration rule, which the financial services industry would almost unanimously oppose.
"If the CFPB were to finalize an arbitration rule I would think we will witness a huge amount of industry pressure" to use the Congressional Review Act to repeal it, Kaplinsky said. "It is going to be nothing like whatever forces are being brought to bear to override the prepaid rule."
Saunders said "there is no question" there would be a battle over the rule in Congress if it goes forward. However, she held out hope that consumer groups can get the votes to stop a resolution.
"We expect a vote on the arbitration rule, but even there I think we can defeat it," Saunders said.