CFPB Proposal Seeks to Eliminate Pre-Dispute Arbitration Agreements

May 6, 2016

On Thursday, May 5, 2016, the CFPB released its arbitration rulemaking proposal and the Final Report of the small business review panel. The proposal prohibits covered providers of consumer financial products and services from using pre-dispute arbitration agreements to prevent consumers from filing or participating in a class action against the provider. The proposal is largely consistent with the outline the Bureau released in October of 2015 ahead of its small business review panel.

In summary, the proposal contains the following provisions:

  • Coverage of the Rule: The proposal covers all providers of consumer financial products or services, except those not within the scope of the CFPB’s jurisdiction (e.g., merchants). Exceptions are also provided to government entities and providers serving no more than 25 consumers in the current year and preceding year.
  • Ban on Class Action Waivers: The proposal would ban the use of class action waivers in pre-dispute arbitration agreements after the end of the compliance period. These pre-dispute arbitration agreements would be required to include the following language (or some similar version):

“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.”

  • Submission of Arbitral Records: The proposal would require providers to submit covered arbitration claims and counterclaims with the CFPB. They also would be required to submit the relevant pre-dispute arbitration agreement and any arbitration judgment or award. In addition, the proposal would mandate the filing of any communications from the arbitrator stating the provider failed to pay required filing or administrative fees, and any determinations the pre-dispute arbitration agreement does not comport with the arbitration administrator’s rules or fairness principles. These arbitral records would be redacted for consumer privacy considerations and submitted within 60 days of filing or receipt.
  • Compliance Period: The effective date of the final rule would be 30 days after publication in the Federal Register, and the compliance period would be 180 days thereafter. The final rule would only apply to agreements entered into after the compliance period. Certain exceptions would be offered for pre-packaged general purpose reloadable prepaid cards based on the ability of the provider to contact the consumer in writing.

The comment period for the proposal is 90 days after publication in Federal Register. CBA will offer comments, objections and recommendations to the CFPB.