Arbitration Regulation Bars Class Action Waivers

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On July 10, the Consumer Financial Protection Bureau(CFPB) issued its final rule preventing certain financial product and service providers from including in their consumer contracts pre-dispute arbitration provisions that bar consumers from filing or participating in class action lawsuits.

The rule requires those companies that include arbitration provisions in their contracts, and rely on the arbitration provision to dismiss or delay a lawsuit, to provide the CFPB court records relating to that proceeding, documents created as a result of an arbitration, and the award made, if any, The rule further requires the submission of any communication received from an arbitrator or arbitration administrator that an arbitration agreement does not meet the administrator's fairness principles, rules or other requirements.

The rule also mandates several specific disclosures be included in contracts containing a permitted arbitration provision, and contains optional disclosures allowed under certain circumstances.

Legal challenges to the rule are anticipated based on several grounds, including the reliability and accuracy of the data relied on to support the need for the rule to protect consumers, the methodology used by the CFPB, and that the CFPB exceeded its statutory authority. Further, Congress could nullify the rule, as Chairman Cordray himself acknowledged.

The final rule is effective 60 days after it is published in the Federal Register, but applies only to agreements entered into 180 days after the effective date.

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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