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CFPB further delays TRID effective date

Posted in CFPB General, CFPB Rulemaking, TILA / RESPA

The CFPB has issued its formal proposal to delay the effective date of the TILA-RESPA Integrated Disclosures (TRID) rule until Saturday, October 3, 2015.  The new effective date comes only a week after the CFPB announced it would delay the effective date until October 1, 2015 due to an administrative error that was made in the rules disclosure and review process.  Specifically, under the Congressional Review Act, Congress and the Government Accountability Office must receive any new rule at least 60 days prior to the rule taking effect.  However, the CFPB failed to submit its notice until after the 60 day deadline had passed and was forced to delay the effective date of the TRID rule as a result.

Although based on when the CFPB completed the required filing, the effective date of the TRID rule would have been delayed until August 15, 2015, the CFPB decided to propose a longer delay.  In the CFPB’s press release, the agency says it believes pushing back the effective date to the first Saturday of October “may facilitate implementation by giving industry time over the weekend to launch new systems configurations and to test systems.”  The Saturday launch date is also consistent with original industry plans to transition to the new TRID rule on Saturday, August 1, 2015.  According to the CFPB, “moving the effective date may benefit both industry and consumers with a smoother transition to the new rules.”  As we noted previously, concerns with the finalization of the necessary software to comply with the TRID rule may have been a factor in the CFPB’s decision.

The proposal will be published in the Federal Register on June 26, and comments are due by July 7.

Chopra joins Center for American Progress

Posted in Student Loans

Despite a reported endorsement from Senator Elizabeth Warren, it appears that, at least for now, Rohit Chopra, the CFPB’s  former student loan ombudsman, will not be moving into the job of Superintendent of the New York Department of Financial Services.

According to Politico, Mr. Chopra has joined the Center for American Progress, where he will be a senior fellow focusing on issues facing young people and the economy.

CFPB supervisory report highlights violations in consumer reporting, debt collection, student loan servicing, mortgage origination and servicing, fair lending

Posted in CFPB Exams

In its Summer 2015 Supervisory Highlights, which covers supervision work generally completed between January and April 2015, the CFPB highlights legal violations resolved using non-public supervisory actions involving consumer reporting, debt collection, student loan servicing, mortgage origination and servicing, and fair lending.  The report indicates that recent supervisory resolutions in the areas of  mortgage origination,  fair lending, mortgage servicing, deposits, payday lending and debt collection have resulted in remediation of approximately $11.6 million to more than 80,000 consumers.

As we have previously commented, the publication of such Supervisory Highlights is a tremendous tool for companies to learn of the CFPB’s non-public supervisory actions and to inform ongoing efforts to remain in compliance with Federal consumer financial law.  Our experience indicates that highlights such as this distill findings from dozens of exams and can provide significant insight into the CFPB’s priorities and likely future supervisory focus.

The CFPB’s “supervisory observations” include the following:

  • Consumer reporting.  In examinations of consumer reporting agencies, CFPB examiners found weaknesses in policies and procedures at one or more CRAs for vetting and overseeing new furnishers, such as  not updating policies and procedures to describe actual practices or failing to conduct regular monitoring to ensure furnishers followed the CRA’s vetting requirements.  Other deficiencies related to information collection included a lack of formal programs to oversee and manage data provided by furnishers and weak oversight of public records providers.  CFPB examiners also found a lack of quality control policies and procedures to test consumer reports for accuracy.
  • Debt collection.  Deficiencies in compliance management systems at financial institutions found by CFPB examiners included (1) a failure by boards of directors of one or more institutions to hold regularly scheduled meetings or receive information sufficient to oversee compliance practices, and (2) weaknesses in inquiry and complaint management for collection operations, such as a failure to  record, categorize or process complaints forwarded by third-party debt collectors.  CFPB examiners also found that one or more debt collectors were deleting trade lines of accounts after they received disputes without fulfilling the requirement to conduct a reasonable investigation with respect to disputed information.  The CFPB noted that online statements made by one or more entities that they rarely deleted trade lines and regularly investigated disputes were deceptive in violation of the FDCPA when, in practice, such entities summarily deleted trade lines or failed to conduct investigations.  CFPB examiners also found that one or more debt collectors lacked appropriate written policies and procedures regarding the accuracy and integrity of consumer information they furnished to CRAs.
  • Student loan servicing.  During one or more examinations, CFPB examiners found that servicers had (1) included deceptive language on periodic statements suggesting that borrowers could not deduct interest paid on student loans unless they paid more than $600 in interest, and (2) failed to include all required information in FCRA adverse action notices when denying cosigner release requests.
  • Mortgage origination.  CFPB examiners found that one or more supervised entities violated the Regulation Z loan originator compensation rule by failing to maintain written procedures instructing employees how to comply with the entity’s written policies on loan originator compensation.  During one or more examinations, CFPB examiners found that supervised entities failed to give mortgage applicants the list of housing counseling agencies required by Regulation X.  Other Regulation X violations found in one or more examinations were failing to (1) provide a timely GFE or revised GFE, (2) include all fees on a GFE, and (3) ensure that the HUD-1 settlement statement accurately reflected actual settlement charges paid by the borrower.
    With regard to home equity loans, CFPB examiners found that the agreements used by one or more supervised entities included language which provided that consumers who signed the agreement waived all other notices or demands in connection with the delivery, acceptance, performance, default or enforcement of the agreement.  Regulation Z provides that an agreement relating to a loan secured by a consumer’s principal dwelling cannot be applied or interpreted to bar a consumer from bringing a lawsuit for damages or other relief in connection with an alleged federal law violation.  CFPB examiners found the waiver language to be deceptive because it implied that the borrower was agreeing to a waiver that is unenforceable as to any claims based on federal law.
  • Mortgage servicing.  Deficiencies at one or more servicers found by CFPB examiners relating to Regulation X loss mitigation requirements included (1) sending borrowers loss mitigation  acknowledgment notices requesting documents the borrower had previously submitted or that were inapplicable to the borrower’s circumstances and which the servicer did not need to evaluate the borrower for loss mitigation, and (2) failing to send loss mitigation acknowledgement notices to borrowers who had requested short-term payment relief.  It is interesting that the CFPB took issue with a servicer requesting documents that were inapplicable to the borrower’s circumstances or not necessary for evaluation.  The general approach of the Regulation X loss mitigation procedures is to evaluate a borrower for the full spectrum of loss mitigation options, regardless of the borrower’s circumstances or even the borrower’s initial stated preference for a particular option.  Further, the Official Staff Commentary makes it clear that “[a] servicer has flexibility to establish its own application requirements and to decide the type and amount of information it will require from borrowers applying for loss mitigation options.”
    CFPB examiners also found a deceptive practice related to the disclosure by one or more servicers of the terms of a payment plan that deferred payments for daily simple interest mortgage loans.  The communications incorrectly suggested that deferred interest would be repayable at the end of the loan term when, in fact, it would be collected immediately after the deferment ended.  With regard to transferred loans, CFPB examiners found that one or more servicers failed to honor the terms of some trial modifications after transfer.  This was cited as an unfair practice.
    Unfair or deceptive foreclosure-related practices of at least one servicer found by CFPB examiners included sending notices (1) of intent to foreclose to borrowers approved for a trial modification before the modification’s first payment was due without first verifying whether the borrower had a pending loss mitigation plan, and (2) warning borrowers who were current on their loans that foreclosure was imminent (with the practice stemming from a system error that caused default letters to be generated for borrowers with low-balance home equity credit lines and no monthly payment due.)  CFPB examiners also found that (1) periodic statements sent by one or more servicers did not comply with Regulation Z for various reasons that included  listing the same fee twice in the transaction history section of the statement, and (2) one or more servicers violated the Homeowners Protection Act by failing to automatically cancel PMI of borrowers who became current on their mortgages after having been delinquent when their mortgage balances reached 78 percent of the original property value.
  • Fair Lending.  CFPB examiners found that one or more institutions were improperly excluding or refusing to consider income derived from Section 8 Homeownership Program Vouchers or restricting the use of such vouchers to only certain mortgage products or delivery channels.  (Last month, the CFPB issued a compliance bulletin (Bulletin 2015-02) to remind creditors of their obligation not to discriminate against applicants because their income includes such vouchers.)
  • Supervision program developments.  The CFPB discussed its mortgage origination examination procedures, its risk-based prioritization approach to supervision, its use of Potential Action and Request for Response (PARR) letters, and its Action Review Committee process after an entity responds to a PARR letter.

CFPB seeks comments on new information collections

Posted in CFPB General

The CFPB published notices in yesterday’s Federal Register seeking comments on the following information collections:

  • “Consumer Response Government and Congressional Boarding Forms.”  The notice states that the CFPB has developed portals  for state and federal agencies and congressional offices to view and search consumer complaint data.  While not expressly stated in the notice, based on the CFPB’s use of other boarding forms, it would appear that the boarding forms would have to be completed by an agency or office seeking access to the portals.  Comments on the request are due on or before August 24, 2015.
  • A  generic information collection plan to conduct surveys of people about their experiences in consumer credit markets using the Consumer Credit Panel (a proprietary sample dataset from one of the national credit reporting agencies).  The notice states that survey responses “will be used for general, formative, and informational research on consumer financial markets and consumers’ use of financial products and will not directly provide the basis for specific policymaking at the Bureau.”  Comments on the request are due on or before
    July 27, 2015.
  • A generic information collection plan “to conduct research to improve the quality of data collection by examining  the effectiveness of data-collection procedures and processes, including potential psychological and cognitive issues.”  The notice states that the research is intended to “improve [the CFPB’s] understanding of how consumers engage with financial marketplaces.”  Comments on the request are due on or before July 27, 2015.

FTC follows in CFPB footsteps with GLBA privacy notices

Posted in Privacy

The FTC recently proposed amendments to its Gramm-Leach-Bliley Act (GLBA) rules requiring motor vehicle dealers to send their customers an annual privacy notice.  The amendments would allow motor vehicle dealers to notify their customers that a privacy policy is available on their website, subject to certain conditions.  Comments on the proposal are due on or before August 31, 2015.

While Dodd-Frank transferred primary jurisdiction over the GLBA to the CFPB, the FTC retained authority over motor vehicle dealers predominantly engaged in the sale and servicing of motor vehicles, the leasing and servicing of motor vehicles, or both.  The FTC’s proposal  closely reflects the final rule issued last year by the CFPB for financial institutions subject to the CFPB’s GLBA rulemaking authority.

For more on the FTC’s proposal, see our legal alert.

CFPB update on student loan complaints continues to highlight co-signer release issues

Posted in Student Loans

The CFPB has issued a “Mid-year update on student loan complaints” that analyzes the approximately 3,100 private student loan complaints received by the CFPB between
October 1, 2014 and March 31, 2015.  The update also analyzes the approximately 1,100 debt collection complaints related to student loans during the same period.  There is no indication as to whether there was any overlap in these complaints which, in any event, represent a miniscule percentage of student loan borrowers.  According to the CFPB, it received 34 percent more private student loan complaints during this period as compared to the same period last year, perhaps not surprising given the efforts it has made over the past year to stimulate complaints.  Like the CFPB’s April 2014 update, the new report highlights issues related to co-signer releases.

The CFPB’s analysis and findings include:

  • In December 2014, the CFPB sent letters to “certain market participants about current industry practices and policies related to co-signed private student loans.”  (A sample of the letter is included as an appendix to the update.)  The CFPB received six responses “from respondents representing many corporate forms, including large depository institutions and third-parties servicing loans held by banks or in a securitized pool.”  The CFPB does not indicate what portion of the industry these respondents represent.  It found that of the borrowers who applied for a co-signer release from the six respondents, 90 percent were rejected, with the most common reason for the rejection being the borrower’s failure to meet certain pre-application requirements such as making a specified number of on-time payments.  According to the CFPB, the approval criteria “were rarely communicated in a transparent fashion.”
    We find that conclusion surprising, since in our experience marketing materials for these programs specifically disclose the need for on-time payments and a credit check.  Moreover, the conclusion seems questionable in light of a footnote noting that approval rates were higher among respondents that received fewer applications, which suggests that many of the borrowers in question simply would not be considered creditworthy.  The CFPB commented that the “absence of a clear articulation of specific factors that are considered when evaluating a borrower for a co-signer release raises questions about whether lenders have reasonable requirements for borrowers seeking to obtain this commonly-advertised  benefit.”  But these factors are articulated, as noted above, and we see no reason why lenders should have to disclose the specific credit criteria they use in making loans, which, as we understand it, are typically the same criteria they use in doing the “credit check” for what is essentially a refinance of an existing loan.
  • Based on its review of an unidentified “selection of private student loan contracts,” the CFPB found that the contracts generally contained co-signer-related auto-default provisions.  There is no explanation as to what “generally” means.  The CFPB then commented that while respondents to its information request “claimed that they no longer place loans in default when a co-signer dies or files for bankruptcy and the borrower is otherwise in good standing,” this practice “is generally not memorialized in loan agreements.”  It noted that student loan complaints cited the continued use of auto-default clauses by “some market participants” to place a loan in default upon a co-signer’s death or bankruptcy even if the borrower was paying as agreed.  Since the CFPB does not investigate complaints, we are hard pressed to understand how it knows that the borrowers were paying as agreed and could be expected to continue to do so.
    The CFPB also commented that the decision to retain auto-default clauses in private student loan contracts “may create risks for consumers if loans are sold or securitized.” According to the CFPB, in such circumstances, “the contractual arrangements and incentive structures can create the conditions for servicers to limit their discretion and enforce the provisions-even if it is not in the long-term interest of the bondholders-unless servicers are sufficiently indemnified.” This represents a tremendous speculative leap that still fails to address why it would be unreasonable for a lender or holder to make a credit decision based on the death or bankruptcy of the person on whose creditworthiness the lender relied in making the loan.
  • The CFPB discussed “unexpected factors” used by the respondents to disqualify borrowers from co-signer releases, such as accepting an offer to postpone payments through forbearance or making prepayments (with the CFPB noting that the prepayment scenario “may be a violation of federal law in some circumstances.”)  Aside from stating these facts, the CFPB neglects to explain why it would be reasonable for a borrower to conclude that he or she had made the required number of consecutive on-time payments when the borrower stopped making payments altogether.
  • Other co-signer complaints noted by the CFPB included the inability of co-signers to access key documents such as billing statements and notices of missed payments and “significant bureaucratic barriers and red tape” encountered by co-signers when attempting to make payments on co-signed loans.  However, the CFPB says nothing about the extent to which cosigners can obtain this information on the servicer’s website and it continues to ignore the fact that the payment allocation routines it finds objectionable (and which can necessitate manual processing) are the same ones promoted by the Department of Education.
  • Changes suggested by the CFPB to address co-signer release issues include more transparent communication regarding co-signer release criteria, warning borrowers about actions that may lead to disqualification for a release, notifying borrowers when they have met the criteria for a release, and making release applications more accessible.  (In April 2014, the CFPB also issued a consumer advisory about co-signer releases that included sample letters to be sent to servicers, with one to be used by borrowers seeking information about a release and the other by co-signers seeking a release.)
  • The update also includes a section entitled “Roadblocks to Refinance” that discusses problems faced by borrowers when seeking to pay off loans in full (such as difficulty in obtaining accurate payoff information or paying off high-rate loans when a servicer handles multiple loans).  To address these concerns, the CFPB suggests that servicers offer electronic means to request payoff statements and change processing policies to make it easier for borrowers seeking to refinance to provide advance prepayment instructions in anticipation of proceeds from a refinance provider.

The update concludes with the comment that its analysis and findings were shared with Director Cordray “who expressed concern that student lenders and servicers may not be making even the most modest investments to improve their processes to ensure appropriate levels of customer service.”  Given the  superficial nature of much of the analyses and the limited factual support for many of the findings, we can only say that we are disappointed by such remarks.

 

New empirical study of AAA arbitrations is a study in contradictions

Posted in Arbitration

A new empirical study of approximately 5,000 American Arbitration Association (AAA) consumer arbitrations conducted between 2009 and 2013 purports to find a “repeat player” effect favoring companies that previous researchers, including the Consumer Financial Protection Bureau (CFPB) itself, have not discerned.  In an article to be published later this year in the Georgetown Law Journal, two University of California (Davis) professors, David Horton and Andrea Cann Chandrasekher, claim that this advantage gives businesses “a boost in the handful of matters that trickle into the arbitral forum.”  The authors state that they will shed light on what occurs behind the “black curtain” of arbitration because prior commentators “have only the dimmest sense of what actually happens in the extrajudicial forum.”

Although the study purports to be objective and is replete with statistics, formulas and regression analyses, it reflects the authors’ clear preference for class actions over individual consumer arbitration.  According to the study, Supreme Court decisions such as AT&T Mobility, Inc. v. Concepcion and American Express v. Italian Colors Restaurants created a “consumer arbitration revolution” that “shields big business from class action liability.”  The authors argue that their study should provide an “independent reason for Congress to forbid class arbitration waivers” and assert that “[r]eestablishing class arbitration would prevent the gulf between large companies and consumers from deepening.”  Policy statements such as these cast a cloud over the purported objectivity of the study.

In any event, the study is based on a fundamentally incorrect premise – that “arbitration has displaced litigation as the primary method by which consumers resolve disputes against companies.”  According to the study, arbitration has caused the “the demise” and “the abolition” of the consumer class action and a “massive shift” in the way that consumers resolve disputes with companies.  Not only are these extreme assertions not supported by any facts or figures, but they contradict the study’s own statement that only a “handful of matters … trickle into the arbitration forum.”  They also contradict statistics contained in the CFPB’s 728-page empirical study of consumer arbitration issued in March 2015.  The CFPB found that arbitration was a factor in only 8% of the 562 class actions studied.  That is because the defendant companies moved to compel arbitration in only 94 of the 562 class actions (16.7%), and those motions were granted in only 46 (one-half) of the class actions.  Thus, arbitration had no causal effect whatsoever on 92% of the class actions studied by the CFPB, which included post-Concepcion filings.  To paraphrase Mark Twain, the report of the death of consumer class actions has been greatly exaggerated.

Moreover, even if a company is a “repeat player” (i.e., frequently appears) before the AAA, the study does not explain how that has any effect on any particular arbitrator’s award in any particular case.  Companies don’t choose to get sued; the appearance of a respondent company in an AAA arbitration is a wholly random event that depends on the fortuity of a claimant plaintiff suing or commencing an arbitration against the company.  Nor do companies select the arbitrators under the AAA Consumer Rules; the AAA selects the arbitrator.

The study itself acknowledges that the AAA has adopted Consumer Due Process Protocols which strive for fundamental fairness.  In particular, as the study admits, the AAA “attempts to safeguard consumers’ interests during the arbitrator-selection process.  Unless the parties have agreed otherwise, the AAA will appoint an arbitrator from its roster, task that individual with divulging potential conflicts of interest, and consider objections to her nomination.”  As a result of these “prophylactic steps,” the study concludes, “the AAA may be more amenable to consumer plaintiffs than other venues.”

In addition, although not mentioned in the study, before an AAA arbitrator is appointed, he or she must answer a litany of conflict of interest questions, beginning with the admonition that “It is most important that the parties have complete confidence in the arbitrator’s impartiality.”  The AAA also requires the arbitrator to take a sworn oath attesting that he or she will “faithfully and fairly hear and decide matters in controversy between the parties in accordance with their arbitration agreement, the Code of Ethics, and the rules of the American Arbitration Association [and] will make an Award according to the best of the arbitrator’s understanding.”

The study also “confirmed that arbitration is almost certainly faster than litigation.”  It found that the average fully-litigated case in federal or state court takes about two years.  By contrast, the average lifespan of an arbitration in which an award was issued was eight months.  35% of consumers represented themselves; 32% chose to submit the case on the documents; and 45% opted for phone-only hearings.

So where is the alleged arbitrator bias against consumers caused by corporate “repeat players”?  It turns out there is none.  Having insinuated that arbitration is part of a nefarious scheme by companies to deprive consumers of their rights, the study itself completely dispels such a notion, concluding that “fortunately, we found little proof that private judges are prejudiced against consumers.”   The study further acknowledges that the AAA’s due process protocol “makes it harder for arbitrators to feather their own nests.  Unless the parties agree otherwise, the institution [AAA] takes the initiative and picks a decision-maker from its roster.  Because there were 1,279 different arbitrators in our dataset, companies no longer have much control over the identity of the private judge.”   “We simply do not find evidence linking the extreme repeat player effect to arbitrator partiality,” the study admits.  (Emphasis added).  Obviously, these are findings that strongly support consumer arbitration, not findings that impugn it.

What “repeat player” boils down to, we learn on page 65 of the 65-page study, is the proposition that the “individualization of claims” allegedly resulting from Concepcion and Italian Colors “allows high-level and super repeat-players to hone their arbitral skills and therefore flourish in bilateral arbitration.”  In other words, experience in arbitration matters (just as it does in court proceedings).  The CFPB’s own study found that while almost all of the arbitration proceedings it examined involved companies with repeat experience in the forum, that was counter-balanced by the fact that counsel for the consumers were also usually repeat players in arbitration.  The present study simply confirms that the whole “repeat player” debate is a tempest in a teapot.  It most certainly is not a ground that would weigh in favor of CFPB regulation of consumer arbitration agreements.

 

CFPB alerts Google to student loan debt relief scammers

Posted in Student Loans

Rohit Chopra, the CFPB’s outgoing Student Loan Ombudsman, has sent a letter to Google to alert the company that “student loan debt relief scammers may be targeting student loan borrowers through the company’s search products.”

In his letter, Mr. Chopra describes some of the efforts of federal and state law enforcement agencies to stop such scammers.  He states that CFPB’s analysis of Google Trends data suggests struggling borrowers are using certain keywords to search for help.  He urges Google to work closely with federal and state agencies to ensure that its search products are not being used by scammers and suggests that Google can provide  its users with “greater value from [its] search products” and make it more difficult for scammers to flourish “by more closely monitoring advertising on key search terms and helping to drive traffic towards unbiased sources of information.”

New report shows negative effect of CFPB’s contemplated payday loan proposals on credit availability

Posted in Payday Lending

A new report prepared by Charles River Associates for the Community Financial Services Association of America (CFSA) found that the CFPB’s contemplated proposals for payday (and other small-dollar, high-rate) loans would cut small payday lenders’ revenues by 82 percent on average, potentially forcing these lenders to close many existing stores.

The report also found that the CFPB’s contemplated proposals would:

  • Result in overall losses for five out of the six lenders analyzed in the study;
  • Affect most adversely stores in rural areas; and
  • For the 16% of stores analyzed that would remain profitable, decrease profits on average by 68%.

In commenting on the report, the CFSA observed that the report “lays clear the true intent of the CFPB rules – to eliminate access to short-term credit, which would be devastating to the millions of borrowers who rely on payday loans” and “further underscores the CFPB’s complete lack of understanding of how its proposed rules would impact consumers and the businesses that serve them.”

The CFSA also noted that the report follows the recent study by Professor Jennifer L. Priestley which cast serious doubt on the rationale typically offered by consumer advocates for rollover limits—namely, that sustained use of payday loans adversely affects borrowers.  As we reported, one of Professor Priestley’s key findings was that borrowers with a higher number of rollovers experienced more positive changes in their credit scores than borrowers with fewer rollovers.

Lawmakers urge CFPB to reopen arbitration study

Posted in Arbitration

A group of more than 80 House and Senate Republicans have sent a letter to Director Cordray asking the CFPB to reopen its arbitration study.  The CFPB released the final results of its empirical study of consumer arbitration as mandated by Section 1028 of the Dodd-Frank Act in March 2015.

In their letter, the lawmakers comment that the process that led to the study was not “fair, transparent or comprehensive” and that, “[a]s a result, the flawed process produced a fatally-flawed study.”  Echoing concerns we have expressed about the study’s deficiencies, the lawmakers observe that “[r]ather than focusing on the critical question — whether regulating or prohibiting arbitration will benefit consumers — and devising a plan to address the issues relevant to resolving that question, the bureau failed to provide even the most basic of comparisons needed to evaluate the use of arbitration agreements.”  By way of examples, the lawmakers note that the CFPB failed to estimate “the transaction costs associated with pursuing a claim in federal court as compared to arbitration” or “the ability of a consumer to successfully pursue a claim in federal court without a lawyer, despite the fact that consumers often are self-represented successfully in arbitration proceedings.”

The lawmakers call upon the CFPB to “reopen the study process, seek public comment, and provide the necessary cost-benefit analysis for understanding how a similarly situated consumer would fare in arbitration versus a lawsuit.”  Last month, five leading financial services industry trade groups also called on the CFPB to solicit public comments on the final results of its arbitration study before deciding whether to initiate a rulemaking proceeding.  And, as we reported earlier today, the House Appropriations Committee has approved an amendment to the FY 2016 Financial Services Appropriations bill that would impose new requirements on the CFPB before it can issue a rule governing arbitration agreements.