CFPB Bans Class Action Waivers in ‚ÄčArbitration Agreements for Financial Services and Contracts

August 2 2017 | Committees

CFPB Bans Class Action Waivers in
Arbitration Agreements for Financial Services and Contracts

By Heather S. Lonian[1]

 

On July 10, 2017, the Consumer Financial Protection Bureau ("CFPB") issued a rule[2] banning the inclusion of class action waivers in contracts for financial services and products such as credits cards and banking services.  Finding that class arbitration waivers "are being widely used to prevent consumers from seeking relief from legal violations on a class basis, and that consumers rarely file individual lawsuits or arbitration cases to obtain such relief,"[3] the CFPB not only prohibited class action waivers in financial service and/or product arbitration agreements, but also requires said arbitration agreements to explicitly state that class action waivers are prohibited.  The new rule will take effect 60 days following its publication in the Federal Register. 

The viability of classwide arbitration of consumer claims has increasingly been called into question following Supreme Court rulings in AT&T Mobility v. Concepcion, 131 S. Ct. 1740, 179 L. Ed. 742 (2011) and American Express Co. v. Italian Colors Rest., 133 S. Ct. 2304, 186 L. Ed. 2d 417 (2013).  The CFPB's new rule could limit the effect of these holdings as they pertain to financial products and services, thereby representing a major victory for consumer advocates and the plaintiff's bar.  But political and legal challenges to the rule suggest this victory may be temporary.

For example, the opposition from Congressional Republicans, who have previously used the House Review Act to overturn or limit several other CFPB rules, is significant.  The U.S. House of Representatives has already passed a bill aiming to eliminate the CFPB's power to regulate financial institutions altogether,[4] and Republicans in the House and Senate have stated that they will seek to eliminate the arbitration agreement rule.[5]  The U.S. Chamber of Commerce and the acting U.S. Comptroller of the Currency have also signaled that they will assert legal challenges against the arbitration agreement rule.[6]  Further, even if the rule overcomes these hurdles, any immediate practical effect of the new rule to consumers may be limited, as the new rule will not apply to arbitration agreements that were entered less than 180 days prior to the effective date of the rule. 

Companies that provide financial services and/or products (and their counsel) should continue to monitor developments in Congress and the courts that may limit the scope of the new rule or overturn it altogether.  If the law ultimately takes effect, they must review, and where necessary, revise the arbitration agreements in their contracts to ensure compliance with the new rule.  

 

[1]  Heather S. Lonian is a member of Stone Pigman Walther Wittmann, L.L.C.  She practices in the areas of class action and complex litigation.

[2]  Bureau of Consumer Financial Protection Proposed Rule on Arbitration Agreements; Docket No. CFPB-2016-0020; RIN 3170-AA51; 12 CFR Part 1040 (July 10, 2017); available at  http://files.consumerfinance.gov/f/documents/201707_cfpb_Arbitration-Agreements-Rule.pdf.

[3]  Id.

[4] Financial Choice Act of 2017, H.R. 10 (115th Cong. 2017), available at   https://www.congress.gov/bill/115th-congress/house-bill/10/text

[5]  Elizabeth Dexheimer, CFPB Issues Rule Making It Easier for Consumers to Sue Banks, Bloomberg (July 10, 2017), available at https://www.bloomberg.com/news/articles/2017-07-10/cfpb-releases-rule-making-it-easier-for-customers-to-sue-banks.

[6] Lisa Lambert and Peter Schroeder, Republicans Strike Back at New U.S. Ban on Forced Arbitration, Reuters (July 11, 2017), available at https://www.reuters.com/article/us-usa-consumer-arbitration-idUSKBN19W1PJ



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