I recently blogged about the rumor I heard from a reliable source that the CFPB will issue a final arbitration rule by the end of July. That rumor appears to be gaining traction, with a major industry trade group telling its members today that it expects the CFPB to issue a final arbitration rule “very soon.”
If and when the CFPB issues a final rule, it will have a compliance date that is the 211th day after the rule is published in the Federal Register (which is approximately seven months after publication). The same source who told me that a final rule will be issued by the end of July also told me that Director Cordray will leave the CFPB in the fourth quarter of this year to run for Ohio governor. If a final rule were to be issued this month and Director Cordray were to resign by year-end, that would mean compliance with a final arbitration rule would not yet be required when Director Cordray leaves.
Assuming a new CFPB Director appointed by President Trump was in place before the compliance date of a final arbitration rule, could the new Director stay the compliance date? The decision issued earlier this week by the U.S. Court of Appeals for the D.C. Circuit in Clean Air Council v. Pruitt raises questions as to whether Director Cordray’s successor could validly issue such a stay unilaterally. In that decision, the D.C. Circuit ruled that the EPA lacked authority to stay the compliance date of an EPA rule concerning methane and other greenhouse gas emissions and vacated the stay.
The EPA rule became effective in August 2016 and required regulated entities to conduct a monitoring survey by June 3, 2017. After several industry associations filed a petition with the EPA seeking reconsideration of the rule and a stay of the compliance date pending reconsideration, the new EPA Administrator appointed by the Trump Administration announced that the EPA was convening a proceeding for reconsideration and issued a 90-day stay of the compliance date. The EPA thereafter published a notice of proposed rulemaking and announced its intention to extend the stay for two years while it reconsidered the rule. Several environmental groups then challenged the stay in the D.C. Circuit.
While agreeing with the EPA that an agency’s decision to grant a petition to reconsider a regulation is not a reviewable final agency action, the D.C. Circuit ruled that it did have authority to determine whether the stay was lawful. According to the D.C. Circuit, by suspending the rule’s compliance date, the EPA’s stay was essentially an order delaying the rule’s effective date and therefore “tantamount to amending or revoking a rule.” As a result, the D.C. Court concluded that it had jurisdiction to review the stay order’s validity.
The D.C. Circuit rejected the EPA’s reliance on its broad discretion to reconsider its own rules, observing that while agencies do have such broad discretion, they must comply with the Administrative Procedure Act (APA), including its notice and comment requirements. It also rejected the EPA’s argument that it had inherent authority to stay or not enforce a final rule while it reconsidered the rule, and instead deemed it necessary for the EPA to “point to something in either the Clean Air Act or the APA” giving it authority to stay the rule. The court then concluded that the only provision cited by the EPA, a Clean Air Act provision, did not give it the claimed authority because that provision only allowed a stay if reconsideration was mandatory and the court found reconsideration was not required. However, the court also noted that “nothing in this opinion in any way limits the EPA’s authority to reconsider the final rule and to proceed with its June 16 NPRM.”
Based on the D.C. Circuit’s Clean Air Council decision, it appears that while a new CFPB Director could issue a NPRM to reconsider a final arbitration rule, he or she might be unable to unilaterally stay the final rule’s compliance date. Instead, it could be necessary for the new Director to propose a stay of the final rule pending its reconsideration that would be subject to notice and comment.
It is also possible that the CFPB will issue a final payday loan rule in the next few months. Since the CFPB stated in its proposed rule that a final rule would generally not become effective until 15 months after its publication in the Federal Register and Director Cordray’s term expires in July 2018, even if Director Cordray stays at the CFPB until the end of his term, a new CFPB Director should be in place before a final payday loan rule becomes fully effective. However, any stay of a final payday loan rule’s effective date by a new Director could similarly be subject to notice and comment.
Other possible routes exist for overturning a final arbitration or payday loan rule. Either rule could be invalidated through legislation eliminating the CFPB’s authority to issue such rule, a resolution of disapproval under the Congressional Review Act, or a lawsuit challenging the rule’s validity based on the CFPB’s failure to comply with Section 1028 of Dodd-Frank (which authorized the CFPB to regulate pre-dispute consumer financial services arbitration provisions) and/or the APA.