New CFPB Rule Prohibits Class Action Waivers

by Bryan Cave

On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) released a rule prohibiting class action waivers in certain pre-dispute arbitration agreements. The rule drastically impacts arbitration clauses currently used by many financial product and services providers in their consumer agreements.

The rule has three main components. First, the rule prohibits providers from using a pre-dispute arbitration agreement to prevent consumers from bringing or participating in class actions in federal and state court. Second, the rule requires that arbitration agreements inform consumers that their right to bring a class action is unrestricted. Third, the rule requires providers to supply certain records and data relating to arbitral proceedings to the CFPB.

The rule is effective 60 days after publication in the Federal Register and generally applies to agreements entered into more than 180 days after the effective date. Congress, however, can use the Congressional Review Act to prevent the rule from taking effect.

What is the effect of the rule?

The new rule prohibits pre-dispute arbitration agreements for certain consumer financial products or services that block consumer class actions in federal and state courts. The rule accomplishes this in two ways:

  1. providers cannot rely on any pre-dispute arbitration agreement entered after the compliance date that restricts or eliminates a consumer’s right to a class action in state or federal court (§ 1040.4(a)(1)); and
  2. providers must include certain specified plain language in arbitration agreements that explicitly disclaims the arbitration agreements applicability to class actions (§ 1040.4(a)(2)).

The rule also requires providers to submit certain records relating to arbitral proceedings to the bureau, including copies of pleadings, the pre-dispute arbitration agreement, and the judgment. (§ 1040(b).)

Who does the rule apply to?

Because the CFPB only has jurisdiction over consumer financial products and services, the rule is limited to consumer financial products and services. Section 1040.3(a) details the products and services covered by the proposed rule. Generally the activities covered involve consumer lending, servicing consumer debts, storing money, and moving or exchanging money.1 Consumer lending and consumer credit generally means credit extended to a natural person primarily for personal, family, or household purposes. 12 C.F.R. 1002.2(h).

Under § 1040.3(b), the rule does not apply to certain providers and transactions where the CFPB has indicated it believes consumers are already protected or do not otherwise need protection from the rule. For example, § 1040.3(b)(1) covers broker-dealers to the extent they are otherwise covered by SEC rules prohibiting the use of pre-dispute arbitration agreements in class litigation. Similarly, 1040.3(b)(3) exempts providers who provide consumer financial services to no more than 25 consumers in the current calendar year and no more than 25 consumers in the previous year. The CFPB has indicated it believes that 25 or fewer consumers is unlikely to meet the “numerosity” requirement for class actions in the first place, and further the infrequent use of such services lowers the chance of even an individual claim.

Governments and their affiliates would also be excluded by § 1040.3(b)(2). The CFPB has indicated it believes that the democratic process generally will operate to protect consumers from unfair government conduct with respect to consumer financial products and services.

When does the rule go into effect?

The rule is effective 60 days after publication in the Federal Register. And the rule generally applies to agreements entered into more than 180 days after the effective date. (§ 1040.5(a).) There is an exception to the compliance date for general-purpose reloadable prepaid cards packaged with a pre-dispute arbitration agreement before the compliance date if certain additional requirements are also met. (§ 1040.5(b).)

Should I start revising my pre-dispute arbitration agreements?

Congress can prevent the rule from taking effect under the Congressional Review Act. This requires the House and Senate to pass a resolution – with a simple majority in each chamber – and the President’s signature. Congress generally has 60 days to pass the resolution after the rule is published in the Federal Registrer. 5 U.S.C. § 801(3). There has already been some indication that Congress intends to use the Congressional Review Act to prevent the new rule from taking effect. If a provider can revise covered agreements within 180 days of the effective date, it might make sense to wait until the rule becomes effective before revising the agreements.

1. Examples of activities covered by the rule include: most types of consumer lending (both secured and unsecured and issuing credit cards); activities related to that consumer lending (debt servicing, credit monitoring, debt relief, debt collection services, and purchasing or acquiring of consumer loans); extending and brokering automobile leases that are consumer financial products or services. The proposed rule also covers providing deposit accounts and providing consumer services related to the movement or conversion of money (certain payment processing activities, transmitting and exchanging funds, cashing checks, etc.).

[View source.]

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.

© Bryan Cave | Attorney Advertising

Written by:

Bryan Cave

Bryan Cave on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.