On Wednesday, October 7, the Consumer Financial Protection Bureau issued proposals that would, if adopted, limit the use of arbitration provisions in contracts for consumer financial products. The CFPB’s proposals would not ban arbitration clauses entirely, but would prevent their enforcement in class actions relating to consumer financial products and services.

The CFPB’s proposals are two-fold.  First, the CFPB is considering a proposal “to require any arbitration agreement included in a contract for a consumer financial product or service by [a covered] entity . . . to provide explicitly that the arbitration agreement is inapplicable to cases filed in court on behalf of a class unless and until class certification is denied or the class claims are dismissed.” 

Second, the CFPB is considering a proposal “to require covered entities that use arbitration agreements in their contracts with consumers to submit initial claim filings and written awards in consumer finance arbitration proceedings to the Bureau” for the CFPB potentially to make public.  Affected entities would include banks, credit card issuers, small-dollar and payday lenders, and numerous other consumer financial providers.

The CFPB’s proposals would significantly alter the legal landscape regarding enforcement of arbitration provisions. Since the U.S. Supreme Court’s 2011 decision in AT&T Mobility LLC v. Concepcion, which held that states could not prohibit arbitration agreements containing class action waivers, numerous courts have upheld the provisions in consumer contracts. Under the CFPB’s proposals, such provisions in financial services contracts would be unenforceable, reopening the floodgates to consumer class actions.  Unless the CFPB changes course, financial entities should expect a sharp increase in consumer class actions.

The CFPB’s proposals follow the Bureau’s issuance, earlier this year, of its arbitration study.  As described in the CFPB’s press release, the proposals are based on the study and are “the first step in the process of a potential rulemaking” regarding arbitration clauses. The proposals are currently in the CFPB’s small business review panel process. From there, the proposals will have to go through the formal rulemaking process, with an opportunity for comment.