Arbitration is meant to be an alternate to litigation. Yet arbitration is itself the subject of much litigation over who must arbitrate, what must be arbitrated, whether and how the arbitration should proceed, and the deference courts must show to arbitration awards. This blog is intended to be a resource for litigators, in-house counsel, arbitrators and anyone else who wants to stay on top of the many thorny issues that arise under the Federal Arbitration Act. Our Bloggers →

Arbitration Information

CFPB Shows Grit; Issues Rule Curtailing Financial Arbitration

The CFPB today issued a consumer-friendly rule that is likely to significantly curtail the use of arbitration in consumer financial agreements.  That rule has two major components.  First, it prohibits institutions from relying on arbitration clauses to avoid class actions.  And second, it mandates the submission of redacted data on consumer financial arbitrations that will be accessible on the internet.

The rule was originally proposed in May of 2016, roughly a year after the CFPB issued its report on the use of arbitration in the financial industry.  During the required 90-day period, the CFPB received around 110,000 public comments on its proposal.  Yet, the CFPB waited over a year to finalize and issue the rule.  During that time, President Trump took office and his administration reversed course on three previous arbitration-related rules/positions from the Obama Administration.  That context lead to speculation that the CFPB might weaken its proposed rule or otherwise take a safer course.

Yet today the rule was issued and it appears substantially the same as the initial proposal.  Maybe the CFPB wisely spent the past year gearing up for the challenges that similar pro-consumer arbitration rules have faced — like lawsuits challenging the rule’s validity or Congress using its ability to pull the plug on rules within the first 60 days.  Or maybe it just took a year to draft this 775 page behemoth of a rule with all its arguments in favor of its issuance (and responses to its detractors).  (Note that the Trump Administration has been trying to convince a federal court that the President has the authority to fire the CFPB director without cause, which probably did not help any negotiations over the proposed rule.)

In any case, the result is a very far-reaching rule that will likely lead to an uptick in class actions in the financial industry.  It applies to all consumer lending, credit card agreements, auto leases, debt management services, check cashing services, and debt collectors.  Starting six months after the effective date of the rule (assuming no court injunction), it will affect all new agreements within its scope.

The text of the key provisions of the rule follows:

(a) Use of pre-dispute arbitration agreements in class actions—(1) General rule. A

provider shall not rely in any way on a pre-dispute arbitration agreement entered into after the

date set forth in § 1040.5(a) with respect to any aspect of a class action that concerns any of the

consumer financial products or services covered by § 1040.3, including to seek a stay or

dismissal of particular claims or the entire action, unless and until the presiding court has ruled

that the case may not proceed as a class action and, if that ruling may be subject to appellate

review on an interlocutory basis, the time to seek such review has elapsed or such review has

been resolved such that the case cannot proceed as a class action.

(2) Provision required in covered pre-dispute arbitration agreements. Upon entering

into a pre-dispute arbitration agreement for a consumer financial product or service covered by

  • 1040.3 after the date set forth in § 1040.5(a):

(i) Except as provided elsewhere in this paragraph (a)(2) or in § 1040.5(b), a provider

shall ensure that any such pre-dispute arbitration agreement contains the following provision:

“We agree that neither we nor anyone else will rely on 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 filed by someone else.”

(ii) When the pre-dispute arbitration agreement applies to multiple products or services,

only some of which are covered by § 1040.3, the provider may include the following alternative

provision in place of the one required by paragraph (a)(2)(i) of this section: “We are providing

you with more than one product or service, only some of which are covered by the Arbitration

Agreements Rule issued by the Consumer Financial Protection Bureau. The following provision

applies only to class action claims concerning the products or services covered by that Rule: We

agree that neither we nor anyone else will rely on 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 filed by someone else.”

(iii) When the pre-dispute arbitration agreement existed previously between other parties

and does not contain either the provision required by paragraph (a)(2)(i) of this section or the

alternative permitted by paragraph (a)(2)(ii) of this section:

(A) The provider shall either ensure the pre-dispute arbitration agreement is amended to

contain the provision specified in paragraph (a)(2)(i) or (a)(2)(ii) of this section or provide any

consumer to whom the agreement applies with the following written notice: “We agree not to

rely on any pre-dispute arbitration 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 filed by

someone else.” When the pre-dispute arbitration agreement applies to multiple products or

services, only some of which are covered by § 1040.3, the provider may, in this written notice,

include the following optional additional language: “This notice applies only to class action

claims concerning the products or services covered by the Arbitration Agreements Rule issued

by the Consumer Financial Protection Bureau.”

(B) The provider shall ensure the pre-dispute arbitration agreement is amended or provide

the notice to consumers within 60 days of entering into the pre-dispute arbitration agreement.

***

(b) Submission of arbitral and court records. For any pre-dispute arbitration agreement

for a consumer financial product or service covered by § 1040.3 entered into after the date set

forth in § 1040.5(a), a provider shall comply with the requirements set forth below.

(1) Records to be submitted. A provider shall submit a copy of the following records to

the Bureau, in the form and manner specified by the Bureau:

(i) In connection with any claim filed in arbitration by or against the provider concerning

any of the consumer financial products or services covered by § 1040.3:

(A) The initial claim and any counterclaim;

(B) The answer to any initial claim and/or counterclaim, if any;

(C) The pre-dispute arbitration agreement filed with the arbitrator or arbitration

administrator;

(D) The judgment or award, if any, issued by the arbitrator or arbitration administrator;

and

(E) If an arbitrator or arbitration administrator refuses to administer or dismisses a claim

due to the provider’s failure to pay required filing or administrative fees, any communication the

provider receives from the arbitrator or an arbitration administrator related to such a refusal;

(ii) Any communication the provider receives from an arbitrator or an arbitration

administrator related to a determination that a pre-dispute arbitration agreement for a consumer

financial product or service covered by § 1040.3 does not comply with the administrator’s

fairness principles, rules, or similar requirements, if such a determination occurs; and

(iii) In connection with any case in court by or against the provider concerning any of the

consumer financial products or services covered by § 1040.3:

(A) Any submission to a court that relies on a pre-dispute arbitration agreement in

support of the provider’s attempt to seek dismissal, deferral, or stay of any aspect of a case; and

(B) The pre-dispute arbitration agreement relied upon in the motion or filing.

(2) Deadline for submission. A provider shall submit any record required pursuant to

paragraph (b)(1) of this section within 60 days of filing by the provider of any such record with

the arbitrator, arbitration administrator, or court, and within 60 days of receipt by the provider of

any such record filed or sent by someone other than the provider, such as the arbitration

administrator, the court, or the consumer.

(3) Redaction. Prior to submission of any records pursuant to paragraph (b)(1) of this

section, a provider shall redact the following information:

(i) Names of individuals, except for the name of the provider or the arbitrator where

either is an individual;

(ii) Addresses of individuals, excluding city, State, and zip code;

(iii) Email addresses of individuals;

(iv) Telephone numbers of individuals;

(v) Photographs of individuals;

(vi) Account numbers;

(vii) Social Security and tax identification numbers;

(viii) Driver’s license and other government identification numbers; and

(ix) Passport numbers.

(4) Internet posting of arbitral and court records. The Bureau shall establish and

maintain on its publicly available internet site a central repository of the records that providers

submit to it pursuant to paragraph (b)(1) of this section, and such records shall be easily

accessible and retrievable by the public on its internet site.

Share