CFPB Issues Final Arbitration Rule; Efforts to Nullify Are Underway

by Pepper Hamilton LLP

Pepper Hamilton LLP

Although the CFPB’s final rule does not explicitly ban arbitration agreements in contracts involving consumer financial products or services, it greatly diminishes their value.

On July 10, the Consumer Financial Protection Bureau (CFPB) issued a final rule prohibiting a broad range of covered parties from including class action waivers in their pre-dispute arbitration agreements. The rule also requires those parties to provide the CFPB with certain records regarding their arbitral proceedings, including copies of arbitration claims and arbitrator-issued judgments or awards. The final rule substantially mirrors the proposed rule that was published for comment in May 2016. The rule will become effective 60 days after publication in the Federal Register and will apply to arbitration agreements entered into or modified 241 days after publication.

The rule applies broadly to most forms of consumer credit, certain automobile leases, consumer deposit accounts, remittance transfers, check cashing, guaranty and collection services, as well as debt collection involving debts arising from a covered product or service. With respect to consumer credit, the rule covers parties who refer applicants or prospective applicants to a creditor and encompasses the servicing, acquiring, purchasing or selling of consumer credit accounts.

Tribal lenders are exempt if the provider of the subject product or service constitutes an “arm” of the tribe under federal sovereign immunity law and the provider’s immunities “have not been abrogated” by Congress. Those who are exempt from the rule must include specific language in their contract terms and conditions to inform the customer that they “may claim they cannot be sued” in the event of a class action lawsuit.

Arbitration records must be disclosed to the CFPB within 60 days of their filing with an arbitrator. Covered records include the arbitration agreement, the initial claim and counterclaims, answers to claims, and the judgment or award issued by the arbitrator. If an arbitrator refuses to proceed with an arbitration based on his or her finding that the agreement “[does] not comply with an arbitral administrator’s fairness principles,” the finding must be reported to the CFPB. Records reported to the CFPB will be redacted and published on the CFPB’s website beginning on July 1, 2019.

In its comments on the proposed rule, the CFPB estimated that the rule will cause approximately 53,000 providers of consumer financial products and services to pay an additional $447 million to $656 million per year to settle federal class action lawsuits. Furthermore, providers will incur major financial costs in revising their existing practices. In this regard, the CFPB noted that “what is most important from an economic standpoint is that the violator be confronted with the costs of his violations—this preserves the deterrent effect of litigation.” This goal of deterring bad behavior was reiterated in the CFPB’s press release announcing the final rule, where it stated, “When companies know they are more likely to be held accountable by consumers for any misconduct, they are less likely to engage in unlawful practices that can cause harm.” 

In response to the final rule, Alabama Senator Tom Cotton has begun the process to block the rule using the Congressional Review Act (CRA), a law that allows both houses of Congress to vote on a resolution within 60 days of a new rule being published in the Federal Register, and only requires a simple majority to stop a rule from becoming law. If the president signs the resolution, the regulator proposing the rule is also barred from creating a “substantially similar” regulation unless specifically authorized by Congress to create one.

Another potential avenue for preventing the final rule from being enforced is the Financial Stability Oversight Council’s (FSOC’s) power to review CFPB regulations. Upon a written petition from one its members (i.e., the SEC, FINRA, CFTC, FRB, FDIC, OCC and NCUA), the FSOC may stay or set aside a CFPB proposed regulation if two-thirds of the members vote that the regulation “would put the safety and soundness of the United States banking system or the stability of the financial system of the United States at risk.”

Pepper Points

  • Although the CFPB’s final rule on arbitration does not explicitly ban arbitration agreements in contracts involving consumer financial products or services, it greatly diminishes their value.
  • The costs of complying with the rule will be enormous. The CFPB recognizes this fact but believes that significantly higher costs for failures to comply with consumer financial protection laws will result in more diligent efforts to comply.
  • The potential adverse effects of the rule with respect to the availability of consumer financial products and services may result in its nullification through either the CRA process or action by the FSOC.

Research assistance for this article was provided by Avinoam Erdfarb, an associate in Pepper’s Princeton office.


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.

© Pepper Hamilton LLP | Attorney Advertising

Written by:

Pepper Hamilton LLP

Pepper Hamilton LLP 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):

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.