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July 07, 2017 Practice Points

Department of Education Suspends Arbitration Regulation

By Mark Kantor

Continuing a string of actions aimed at halting consumer-related anti-arbitration federal regulatory measures, the U.S. Department of Education recently suspended application of its Obama-era final “Borrower Defense to Repayment” regulation promulgated in October 2016.

The 2016 final regulation, which had been set to take effect on July 1, included among its many provisions full prohibition on the use of pre-dispute arbitration agreements and on class-action waivers by for-profit colleges, as well as disclosure requirements for post-dispute arbitration agreements. Those prohibitions will now not take effect. The department’s press release, and related press coverage of background interviews with department officials, makes no particular mention of the arbitration-related provisions.

The regulation was already the object of ongoing litigation brought by representatives of for-profit colleges, including arguments about whether the arbitration provisions contravened the Federal Arbitration Act. The new question of whether the Trump administration has legal authority to suspend the regulation before it becomes effective will now be added to the litigation issues in that and other lawsuits. In the meantime, Inside Higher Education explains that the process for promulgating a revised regulation (a so-called negotiated rule-making) will likely last into 2019.

The department is looking to begin the rule-making process by this fall. But even under the rosiest of projections, new borrower-defense and gainful-employment regulations wouldn't go into effect until 2019. Under that timeline, the department would have to complete that process and publish a new rule by Nov. 1, 2018—the deadline for regulations to go into effect the following July.

This action is yet another reminder that, in the United States, political attention to arbitration is driven by consumer and similar issues.

Mark Kantor is a member of the College of Commercial Arbitrators in Washington, D.C.

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