CFPB Seeks Input on Study of Mandatory Arbitration Clauses

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The Consumer Financial Protection Bureau (CFPB) has launched the preliminary stage of its study into the use of mandatory arbitration clauses by issuing a Request for Information to the public asking for suggestions about how it should conduct the study.

"Arbitration clauses are found in many contracts for consumer financial products," explained CFPB Director Richard Cordray in a statement announcing the Request for Information. "We want to learn how arbitration clauses affect consumers, and how effective arbitration is in resolving consumers' issues. This inquiry will help the Bureau assess whether rules are needed to protect consumers."

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 explicitly directed the CFPB to study the effect of these arbitration clauses on consumer financial markets, and to report its findings to Congress. The statute also gives the agency the power to issue any necessary regulation limiting or prohibiting the use of these clauses, based on the information it receives from the study.

How this mandate will square with the U.S. Supreme Court's ongoing protection of arbitration as a means of resolving consumer disputes is unclear. As recently as April 2011, after the Dodd-Frank Act's passage, the Supreme Court once again supported consumer arbitration in AT&T Mobility v. Concepcion, et. al., 131 S.Ct. 1740 (2011), based on provisions of the Federal Arbitration Act.

The CFPB's Request for Information seeks "specific suggestions" from the public about how to conduct the mandated study - "to help identify the appropriate scope of the Study, as well as appropriate methods and sources of data for conducting the Study," in the form of answers to specific questions relating to:

 

  • The prevalence of arbitration clauses in consumer financial products and services;
  • What claims consumers bring in arbitration against financial services companies;
  • Whether claims are brought by financial services companies against consumers in arbitration;
  • How consumers and companies are affected by actual arbitrations; and
  • How consumers and companies are affected by arbitration clauses outside of actual arbitrations.


The Request for Information makes clear that at this time the CFPB is not seeking comments on whether it should issue regulations prohibiting or imposing limitations or conditions on the use of arbitration clauses in agreements relating to consumer financial products or services, or whether any regulations would protect consumers or be in the public interest. The CFPB's investigation of arbitration clauses should be followed carefully, however, since its outcome could have a significant impact on what has been a cost-effective means of resolving consumer disputes for several decades.

Comments on the Request for Information must be submitted by June 23, 2012. The CFPB has not indicated when it expects to complete the study.

For more information about the content of this alert, please contact Michael Thurman at mthurman@loeb.com or Michael Mallow at mmallow@loeb.com.


Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

Published In: Administrative Agency Updates, Alternative Dispute Resolution (ADR) Updates, General Business Updates, Consumer Protection Updates, Finance & Banking Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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