On May 5, the Consumer Financial Protection Bureau (CFPB) released its long-awaited proposed rule (Proposed Rule) on the use of arbitration clauses by consumer financial services companies in their customer contracts that restrict a customer’s ability to file or join a class action lawsuit. The Proposed Rule will be open for comment for 90 days after the date it is published in the Federal Register.
Section 1028(a) of the Dodd-Frank Act required the CFPB to study the use of the mandatory arbitration clauses in consumer financial markets. The CFPB released its study early last year and later introduced an outline of proposed restrictions on mandatory arbitration. The study’s results and the outline left little doubt that the CFPB intended to act aggressively to limit the use of arbitration clauses with class action waivers in financial consumer agreements, and in that respect, the Proposed Rule does not disappoint.
The Proposed Rule would enact the following:
- Prohibit providers of “covered consumer financial products and services,” such as credit cards, deposit accounts, other consumer loans, and automobile loans from using an agreement with a consumer that provides for arbitration of any future dispute between the parties and bars the consumer from filing or participating in a class action. Excluded are transactions subject to FINRA arbitration.
- Require providers that participate in predispute arbitration to submit certain records to the CFPB (including the arbitrator’s judgment or award) so the CFPB can monitor arbitration proceedings and determine if further rulemaking is required.
The Proposed Rule would apply prospectively to agreements entered into 211 days after the final rules’ publication in the Federal Register.