The CFPB released proposed rules prohibiting mandatory arbitration clauses in new contracts that deny groups of consumers class action options. The Rules would apply to most all consumer financial products and services that the CFPB oversees, including basic services – lending, storing, moving or exchanging money. Under the Proposal, credit unions would still be able to include arbitration clauses in their contracts, but the clauses would have to explicitly include verbiage that they cannot be used to stop consumers from being part of a class action in court. The specific wording that must be used is provided in the Proposal – “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.”
While many credit unions no longer use mandatory arbitration clauses, and the fact that mortgage loans prohibit the use of these clauses for loans secured by a member’s principal dwelling, credit unions may see these clauses in products or services they offer – such as prepaid cards. There is an proposed exception covering prepaid, reloadable cards (which are included in the Rule) that would allow an attachment to current disclosures – to use up stock, or with written notification after-the-fact. This exception only applies to cards purchased at retail stores and not at financial institutions.
The requirements would apply to any pre-dispute arbitration agreement entered into after the effective date of the rule, with respect to any aspect of a class action that is related to any of the covered consumer financial products or services. The prohibition would not apply to commercial accounts. The Proposed Rule allows for a compliance date that is 211 days after publication of the Final Rule.
The proposal would add a new 12 CFR 1040 to the list of regulations.
No action is required on the part of the credit union at this time, as this is currently a proposed regulation.
Comments on the Proposed Rule will be accepted for 90 days following publication in the Federal Register.
Proposed Rule – as submitted to the Federal Register
Text of Proposed Rule with in Outline Format with Official Interpretations Incorporated
