CLIENT ALERT
What The Consumer Financial Protection Bureaus Ban On Class Action Waivers In
Arbitration Agreements Means For Your Company
By:
Jason Anderson
janderson@sycr.com
(949) 725-4233
Katie Beaudin
kbeaudin@sycr.com
(949) 725-4074
The Consumer Financial Protection Bureau
(CFPB) published a new rule on July 19
barring companies that the CFPB oversees
from inserting class action waivers in
mandatory arbitration clauses that are
included in their contracts with consumers.
The rule will prohibit class action waivers in
agreements relating to checking or savings
accounts, credit cards, student loans,
payday loans, some payment processing
services, consumer reports and credit
scores, prepaid cards, and consumer debt
collection, among others. The CFPB
describes the rule as making it easier for
consumers to band together when harmed
by a financial service provider.
CFPB rules are subject to override either by
Congress power under the Congressional
Review Act or the Financial Stability
Oversight Council, a panel of regulators
created by the Dodd-Frank Act. The
Council forewent a challenge to the rule,
leaving the fate of the CFPB arbitration rule
in the hands of Congress. The U.S. House
of Representatives voted to block the rule,
and the Senate Banking Committee also
introduced their own version of the
resolution blocking the rule. However, the
Congressional Review Act only gives both
chambers 60 legislative days after a rules
publication to adopt a resolution and news
outlets are reporting that the Senate looks
unlikely to vote on the resolution in the
month of August.
This means that the CFPB arbitration rule is
likely to go into effect and companies need
to reevaluate the agreements they have in
place while also preparing for a potential
spike in consumer litigation.
The CFPB rule will become effective in eight
months, so companies within CFPB
jurisdiction need to start reviewing existing
consumer agreements to ensure that
arbitration provisions are included and
drafted in accordance with the new rule.
This includes not only agreements with
consumers, but also terms and conditions
featured on company websites. The
proposed rule requires the following
language: We agree that neither we nor
anyone else will use 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
even if you do not file it.
Companies may also see more consumer
class action litigation once the final rule
goes into effect. The CFPB studied current
arbitration data and found that over the
three-year period of 20102012, consumers
only filed an average of 411 claims for
arbitration in consumer financial services
products. The rule will likely see a huge
spike in the number of suits companies
face.
Stradlings Consumer Class Action Practice
Group is prepared to help companies better
understand how this rule affects them from
drafting new consumer agreements and
later defending consumer class actions.