The Consumer Financial Protection Bureau (CFPB) issued a rule yesterday prohibiting class action waivers in arbitration provisions of certain consumer contracts. The rule—to be codified at 12 C.F.R. § 1040—does far more than simply prohibit class action waivers, however. It additionally requires the inclusion of language in all arbitration provisions specifically informing consumers of the ability to file or join a class action and requires covered businesses to submit records to the CFPB regarding any arbitration filed by or against their customers regarding covered products and services. The provided records will be made public and hosted by the CFPB on a searchable database.

The rule applies to defined “covered products and services,” including the following consumer financial products and services:

• Extending “consumer credit” (as defined in 12 CFR 1002.2)
  
  
  • Participating in consumer credit decisions
  • Servicing consumer credit
  • Acquiring, purchasing, or selling consumer credit
  • Referring applicants to providers or consumer credit
• Automobile leases (as defined in 12 CFR 1090.108)
• Providing services with debt management or settlement
  
  
  • Providing services to remove items from a credit report
• Credit reporting
• Providing accounts subject to the following
  
  
  • Truth in Savings Act
  • Electronic Fund Transfer Act
• Transmitting or exchanging funds (as defined by 12 U.S.C. 5481(29))
• Accepting financial and banking data or providing a services regarding that data to initiate payments via certain instruments defined in 12 U.S.C. 541(18)
• Check cashing, check collection, or check guaranty services
• Debt collection regarding products described above

The rule does not apply to persons regulated by the Securities and Exchange Commission or state securities commissions, broker dealers, investment advisers, persons regulated by the Commodity Futures Trading Commission, persons who provide any of the above products or services to no more than 25 consumers in the preceding year, retailers offering consumer credit under defined circumstances, and employers offering such products as an employee benefit.

The rule also requires the inclusion of new language into all covered arbitration provision moving forward:

“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.”

Further, all covered persons who continue to use arbitration provisions moving forward must provide the following arbitration information and filings directly to the CFPB (redacting certain personal information of the consumer):

• The initial claim and counterclaims, if any
• The answers to claims and counterclaims, if any
• The arbitration agreement filed with the arbitrator
• The judgment or award
• Communications from arbitrator that the agreement does not comply with the governing rules’ fairness principles or similar requirements
• Court submissions seeking dismissal, deferral, or stay relying on the arbitration provision and the arbitration provision relied on for that filing.

The CFPB will then take these submissions and create a searchable database for the public.

The question then becomes, what use does consumer arbitration retain? Moving forward, businesses can no longer rely on arbitration provisions as a means to avoid class actions, rulings and filings will be publicly available (just like court filings), and grounds for appeal or review of an arbitration award remain notably scarce.

Unwinding this rule will also be difficult. Given the United States Court of Appeals for the District of Columbia Circuit’s recent opinion in Clean Air Council v. Pruitt, a simple regime change of the CFPB (which seems imminent) may not be sufficient to stop enforcement of the rule. The best hope likely falls to Congress. Under the Congressional Review Act, Congress has 60 days to vote on a resolution to disapprove the rule. Such resolution once signed by the President not only nixes the at issue regulation but also bars promulgation of look-alike regulations. Whether Congress is too preoccupied with other issues or cares to unwind the rule is something all businesses subject to the rule should watch.