In response to a petition filed last week by a number of consumer advocacy groups, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it will be seeking public input on a possible rule that would curtail mandatory pre-dispute arbitration provisions.
On September 14, the National Association of Consumer Advocates, Public Citizen, the American Association for Justice, Public Justice, the National Consumer Law Center, Consumer Federation of America, the UC Berkeley Center for Consumer Law & Economic Justice, Americans for Financial Reform, and Better Markets, Inc. (collectively the “consumer advocacy groups) submitted a Petition for Rulemaking requesting that the CFPB promptly issue a rule addressing the use of mandatory pre-dispute arbitration provisions in contracts that would “allow the consumer to make a meaningful choice on whether to use arbitration after a dispute arises.” Specifically, the consumer advocacy groups advocate for a rule that would allow consumers to choose between arbitration and litigation after the dispute arises and up until the time arbitration proceedings begin.
In response to a Bloomberg Law article, the CFPB stated “Americans are overwhelmed by increasingly lengthy, complex, and one-sided fine print in form contracts. The CFPB is focused on companies that use fine print to extract extra money, lock people into unwanted business relationships, gain advantage they could not obtain in fair and competitive markets, or circumvent the rule of law … We are carefully considering the proposal relating to arbitration clauses, and will be opening a public docket and taking comment from the public on the proposal.”
As discussed here, in 2017 the CFPB promulgated the Arbitration Agreements rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorized the CFPB to “prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties.” The Arbitration Agreements rule would have prohibited class action bans in arbitration clauses. Under the Congressional Review Act (CRA), however, a rule promulgated by an administrative agency “shall not take effect (or continue), if the Congress enacts a joint resolution of disapproval.”
The day after the CFPB promulgated the Arbitration Agreements rule, Congressman Keith J. Rothfus (R-Pa.) introduced H.J. Res. 111, a joint resolution of disapproval. The measure prevailed and President Trump signed into law H.J. Res. 111 on November 1, 2017, thereby invalidating the Arbitration Agreements rule. An argument could be made that the proposed rulemaking would be barred by the CRA because it is “substantially the same” as the earlier rule that Congress vetoed.
In their petition, the consumer advocacy groups attempted to get ahead of the argument that the proposed rule is “substantially the same” as the earlier rule and accordingly foreclosed by the CRA. They assert that the CFPB’s 2017 rule prohibited class action bans in arbitration clauses while the newly proposed rule would not address class action bans and would instead give consumers the right to make the choice about dispute resolution after a dispute arises. Whether this distinction is enough to satisfy CRA muster remains to be seen.
What also remains to be seen is whether the CFPB actually pursues a rulemaking on this topic. Simply opening a docket and taking public comments on the petition does not necessarily mean that the Bureau will be taking any action at all on the arbitration front. We will continue to watch this issue, but for now, it’s too soon to draw any firm conclusions about what may happen.