The Consumer Financial Protection Bureau (“CFPB” or “Bureau”)
held a field hearing in Albuquerque, New Mexico to announce the release
of its proposed rule regarding the use of arbitration agreements in consumer
financial services contracts. The proposed rule would prohibit covered
providers of certain consumer financial products and services from using
arbitration agreements containing class action waivers. The CFPB contends
that the waivers are used to prevent customers from filing or participating
in class action litigation to resolve disputes. The proposal would also
require that any covered provider involved in an individual arbitration
under a pre-dispute arbitration agreement submit certain records relating
to the proceedings to the Bureau.
In March 2015, the Bureau issued its study of consumer financial services
arbitration as mandated by the Dodd-Frank Act. Based on the results, the
CFPB concluded that arbitration agreements are detrimental to consumers.
Others have drawn a different conclusion, claiming the data demonstrates
that arbitration is faster, more economical, and provides consumers greater
monetary relief than class litigation.
Critics have expressed concern that the proposed regulations would limit
consumers’ options for resolving disputes and might increase frivolous
class action lawsuits against financial institutions. Trade associations
have pointed to the proliferation of frivolous Telephone Consumer Protection
Act (“TCPA”) class action claims and the burden placed on
some financial institutions.
The CFPB’s proposal may also contain other shortcomings as the Bureau
takes a one-size fits all approach to applying the arbitration rules to
the consumer finance industry as a whole. For example, credit unions –
which are member-owned, not for profit organizations – take a much
different approach to resolving disputes than large banks. Because of
their ownership structure, credit unions rely on arbitration provisions
as an important tool to provide time and cost-saving benefits that litigation
does not. Further, the rule creates a scenario in which a group of members
who have a dispute with the credit union would essentially have to sue
themselves as part of a class-action claim to resolve their dispute.
The proposed regulations would only apply to arbitration agreements entered
into after the end of the 180-day period that begins on the rule’s
effective date. The Bureau is proposing an effective date of 30 days following
publication of the final rule in the Federal Register. Thus, the proposed
regulations would not apply to arbitration agreements entered into before
210 days after a final rule is published. Observers anticipate that a
final rule will not take effect sooner than the summer of 2017. Comments
on the proposal are due on or before Monday, August 22, 2016.
Contact Geraci Law Firm at (949) 298-8050 today, or contact
for more information.