Will Trump Revive Unconstitutional Forced Arbitration Clauses?

How the Blue Collar Billionaire can stick up for the little guy.

One of the few things I agreed with the Obama Administration about is the need to get rid of forced arbitration clauses, those annoying contract provisions that deprive us of our Seventh Amendment right to sue companies that injure us.

The ubiquitous clauses are not only unconstitutional, they’re also anti-consumer and increasingly used by powerful people like Roger Ailes and the executives of Wells Fargo to shield themselves from accountability for outrageous behavior. (I’ve written quite a bit about this.)

With the change of presidents, it’s unclear where this issue is headed.

Before it left town, the Obama Administration proposed strong anti-forced-arbitration regulations via the Consumer Financial Protection Bureau, the Centers for Medicare and Medicaid Services, and the Department of Education, with each agency essentially banning the clauses within the industries under its jurisdiction.

Unfortunately, the CFPB version of the rule,  which would ban the clauses in credit card and other financial services agreements, is stuck in limbo.*

When President Trump came in, the rule was still pending. It had not yet become “final.” One of Trump’s first acts was to issue a general moratorium on all pending rules. Everything was halted for a fresh review.

So what’s next? Is the CFPB rule dead?

Maybe, maybe not. As an independent agency, CFPB enjoys a special status that arguably exempts it from Trump’s order. As a recent summary by the lawyers at Mayer Brown explains:

“Independent regulatory agencies,” such as the Consumer Financial Protection Bureau (“CFPB”) . . . may be excluded from [Trump’s] moratorium. … Although the memorandum appears sweeping in scope, banks and other financial service providers are not necessarily relieved from new regulations, as the regulatory freeze does not appear to apply to independent agencies. … Executive Order 12866 [first issued in the 1980s] expressly exempts “those [agencies] considered to be independent regulatory agencies” from its definition of “agency.” The term “independent regulatory agency” is defined pursuant to 44 U.S.C. § 3502(5) to include the CFPB, the Federal Reserve Board, the OCC, the FDIC, and the SEC. [Emphasis added.]

That would seem to take CFPB off the hook. Still, Trump White House staff have it in their power to slow down the agency with other bureaucratic hurdles, like the Paperwork Reduction Act of 1980, which authorizes the Office of Management and Budget (OMB) to hold up the works, perhaps indefinitely. And if CFPB pulled the trigger, Congress could try to retaliate legislatively somehow.

Meanwhile CFPB’s director, Richard Cordray, will only say that his agency is “digesting” the moratorium and has not decided yet whether or how to follow it.

I hope the agency invokes its exempt status and moves ahead.

If it does, doubtless the U.S. Chamber of Hypocrisy and its big business allies will throw a fit. But if Trump is smart, he’ll disregard the crony lobby and take a principled stand for a pro-market—rather than a merely pro-business—policy.

By continuing Obama’s efforts to make private arbitration truly optional, the Blue Collar Billionaire could not only strike a blow for the little guy, he could also shore up every citizens’ sacred, Seventh Amendment right to trial by jury—and thus the cause of liberty.

Dean F. Clancy, a former senior budget official in the George W. Bush Administration and health policy advisor to congressional Republicans, writes on U.S. budget, health care, and constitutional issues. Follow him at deanclancy.com or on twitter @deanclancy.


* Rather than fix this problem via regulations, I would prefer Congress undid its own mistakes—in this case, by repealing or amending the constitutionally problematic Federal Arbitration Act, which is the source of  the noxious clauses. But with special interests blocking reform legislation, I think regulatory action is the only way to do the right thing until Congress comes to its senses. Trial by jury is a constitutional right. And justice delayed is justice denied.

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