Arbitration Provisions in Consumer Finance Contracts: The Current Regulatory Landscape

As part of the Dodd-Frank Wall Street reform legislation of 2010, Congress created the Consumer Financial Protection Bureau and granted it authority to regulate financial products and services marketed to consumers. The Dodd-Frank Act also specifically charged the CFPB with studying the use of mandatory, pre-dispute arbitration agreements in contracts for such consumer financial products and services and enacting rules consistent with the results of the study.

The CFPB published the results of its arbitration study in a report to Congress in March of 2015. The report analyzed the pre-dispute arbitration provisions included in contracts for credit cards, checking accounts, payday and other short-term loans, prepaid cards, private student loans, and wireless telephone service. It also reviewed over 1800 arbitrations filed with the American Arbitration Association between 2010 and 2012 about the financial products and services that the CFPB regulates, as well as nearly 3500 individual cases filed in federal courts and 562 class actions filed in federal and selected state courts regarding the same products and services during the same three-year period.

In May of 2016, the CFPB published a proposed rule based on the results of its arbitration study. The comment period on the proposed rule closed on August 22. The proposed rule would prohibit consumer financial service providers from relying on language in arbitration agreements – their own or anyone else’s – to bar their customers from filing class actions against them in court or participating in class actions filed by others. The rule would also require covered providers to notify customers of their class action rights through an amendment to the arbitration agreement or another form of notice. Finally, the rule would mandate that covered providers submit records of any arbitration claims and awards, as well as other specific arbitration-related information, to a CFPB database for possible publication online. 

The proposed rule garnered thousands of written comments from a broad swath of consumer and civil rights groups, legal aid organizations, banks and other regulated entities, and federal and state elected officials, as well as over 100,000 comments from members of the public. Reactions ran the gamut from complaints that the agency exceeded its authority and that the proposed rule would lead to higher consumer prices as financial services companies respond to increased class action exposure, to charges that the rule did not go far enough because it failed to ban pre-dispute arbitration clauses entirely.  

1. Learn which consumer financial products and services are covered by the proposed CFPB arbitration rule
2. Understand when particular aspects of the rule come into effect for both new and existing arbitration agreements
3. Become familiar with the new regulatory requirements for covered providers under the three main sections of the rule: non-reliance, consumer disclosures, and submission of arbitral records