Proposed Rule prohibiting arbitration clauses for group actions
The CFPB is considering proposing a rule that would ban consumer financial companies, including banks and credit unions, from clauses requiring arbitration, that are used to block class action lawsuits. The proposals under consideration would prohibit companies from blocking group lawsuits through the use of arbitration clauses in their contracts. This would apply generally to the consumer financial products and services that the Bureau oversees, including credit cards, deposit accounts, auto loans, small-dollar or payday loans, private student loans, and some other products and services as well.
Although the CFPB is not proposing to prohibit the use of pre-dispute arbitration clauses for individuals, it plans on monitoring the effects of the clauses on the resolution of individual disputes. In enable to do this, the proposal would require companies to send to the CFPB all filings made by or against them in consumer financial arbitration disputes and any decisions that stem from those filing. The CFPB is also considering publishing the claims and awards on its website for public view.
Through the Dodd-Frank Act, Congress required the CFPB to study the use of arbitration clauses in consumer financial markets and gave the Bureau the power to issue regulations that are in the public interest.
The study — released in March of this year — showed that more than 75% of consumers surveyed in the credit card market did not know they were subject to an arbitration clause, and fewer than 7% of those consumers covered by arbitration clauses realized that the clauses restricted their ability to sue in court.
Recommended Actions:
Credit unions should review their member agreements to identify whether the agreements include arbitration clauses. Arbitration clauses blocking group actions will likely be prohibited in the future, and other arbitration clauses will likely require additional reporting to the CFPB.
Outline of Proposals Under Consideration and Alternatives Considered (34 pages)
March 2015 Arbitration Study (728 pages)