Alerts

The Consumer Financial Protection Bureau (CFPB) announced today that it is proposing rules which would limit arbitration clauses in consumer contracts such as credit card agreements, private student loans, and payday loans, among others. The CFPB is publishing an outline of the proposals under consideration in preparation for a Small Business Review Panel, which will gather feedback from small industry stakeholders. This is the first step in the process of a potential rulemaking on this issue.

The proposals do not ban arbitration clauses entirely; however, arbitration clauses in consumer contracts would have to explicitly state that they do not apply to class actions until the class certification is denied or the class claims are dismissed in court. The proposals also require companies to provide the CFPB information regarding the arbitration claims that are filed and awards that are issued.

The CFPB indicated that the benefit of the proposals would be to provide a "day in court" for all consumers, and to have a deterrent effect on companies who would violate consumer protection laws. If more consumers have the ability to file suit in state and federal court instead of pursuing relief through arbitration, then companies would theoretically face increased exposure – and public scrutiny – for any alleged wrong-doing. 

Weltman will continue to monitor these proposals and any proposed rulemaking.