CFPB Finalizes Arbitration Rule, Paving the Way for More Class Action Litigation

by Goodwin
Contact

On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) announced the release of its anticipated Arbitration Rule, opening the door for more consumer class actions against financial institutions concerning financial products and services.  Many consumer contracts, such as credit card and bank agreements, contain mandatory arbitration clauses.  These clauses typically require consumer disputes to be arbitrated rather than litigated in court, and they work to prevent class action lawsuits from being filed.  Consumer advocacy groups have long complained about such clauses, posturing that individuals are unlikely to endure the costs of arbitration to resolve what are typically low dollar value cases.  Their position is that if consumers were able to band together and file class action lawsuits, consumers would be more apt to challenge allegedly unlawful conduct against financial institutions, and companies would be held accountable.

The new Arbitration Rule prohibits the use of mandatory arbitration clauses in consumer financial products and services contracts to prohibit class action lawsuits.  To be certain, financial institutions can still include arbitration clauses, but these clauses cannot be used to stop consumers from filing class actions.  If companies want to include an arbitration clause in a consumer contract, the Rule requires that the clause incorporate the following language: “We agree that neither we nor anyone else will rely on this agreement to stop you from being part of a class action case in court.  You may file a class action in court or you may be a member of a class action filed by someone else.”  12 C.F.R. § 1040.4(a)(2)(i).  If an arbitration clause applies to several products or services, only some of which are covered by the Arbitration Rule, then the language must specify that the aforementioned language applies to conduct covered by the Rule.  § 1040.4(a)(2)(ii).

The Rule also requires companies that include arbitration clauses in consumer financial products and services contracts to produce certain records to the CFPB.  § 1040.4(b).  These records include (1) claims, counterclaims, answers, arbitration agreements, judgments or awards, and dismissals concerning arbitration claims filed; (2) communications with arbitrators concerning a determination that an arbitration agreement “does not comply with the administrator’s fairness principles [or] rules;” and (3) court filings that rely on arbitration agreements in support of a company’s request for dismissal, deferral or stay, and the arbitration agreement relied upon.  § 1040.4(b)(1)(i)-(iii).  In its announcement of the release of the final Rule, the CFPB stated that “[g]athering these materials will enable the CFPB to better understand and monitor arbitration, including whether the process itself is fair.”  Redacted versions of the materials produced to the CFPB by the companies will be published on the CFPB’s website beginning in July 2019.

The Rule becomes effective 60 days after its publication in the Federal Register, and applies only to contracts entered into by consumers 180 days after the effective date.  It remains to be seen what kind of challenges are brought in an effort to stop the Rule from becoming effective, but such challenges can be expected.  Already, members of Congress are indicating that they intend to move forward with a Congressional Review Act challenge.  U.S. House of Representatives Financial Services Chairman Jeb Hensarling (R-TX) stated that “[t]his bureaucratic rule will harm American consumers but thrill class action trial attorneys” and urged Congress to reject the Arbitration Rule pursuant to its authority under the Congressional Review Act.  Similarly, U.S. Senate Banking Committee member Tom Cotton (R-AR) issued a statement promising to move forward with rescinding the Rule under the Act.  And prior to the Rule being unveiled by the CFPB, acting Comptroller of the Currency, Keith Noreika, is reported to have denounced the Rule, citing the Dodd-Frank Act as his Office’s authority to strike it down.  LenderLaw Watch will provide updates on progress made to challenge the Arbitration Rule as they arise.

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.

© Goodwin | Attorney Advertising

Written by:

Goodwin
Contact
more
less

Goodwin 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.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

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.

Security

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 info@jdsupra.com. 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: info@jdsupra.com.

- 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.