August 7, 2017 9:04 am

by Elva M. Coffey-Sears, CRCM, CRP

The Dodd-Frank Act authorized the Bureau to conduct a study of arbitration and, if the study found that rules were in the public interest and for the protection of consumer, to implement regulations, consistent with the findings of the study, restricting or prohibiting arbitration. According to the CFPB, the study shows that pre-dispute arbitration agreements are widely used to prevent consumers from filing class action suits and that consumers rarely file individual lawsuits seeking relief.

On July 19, 2017, the CFPB published a final rule and official interpretations to regulate arbitration agreements in contracts for specified consumer financial products and services. The rule is designed to increase the availability of class action relief to consumers. The final rule “prohibits covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action concerning the covered consumer financial product and services.”

Additionally, the final rule “requires covered providers that are involved in an arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the Bureau and also to submit specified court records.” The Bureau intends to monitor and analyze these submissions to determine if further regulatory action is necessary to promote consumer protection.

This Arbitration Agreements rule is effective September 18, 2017 and requires mandatory compliance for agreements entered into on or after March 19, 2018. Or, then again, maybe not!

Almost immediately upon the CFPB’s issuance of the rule, Republicans took steps to overturn the rule under the Congressional Review Act (CRA). The ABA and state banking associations from all fifty states and Puerto Rico submitted letters to key congressional leaders requesting support in overturning this rule. Additionally, the OCC issued a press release indicating that it believes the rule may adversely affect financial institutions and their customers, and may result in decreased availability and/or increased costs of products and services. Proponents of the CRA action indicate that the CFPB’s study does not support the new rule, but rather shows that consumers benefit from more expeditious resolution at lower costs under arbitration.

The House of Representatives passed a resolution to repeal the Bureau’s rule on July 25; the Senate is not expected to vote until September; and, the White House indicates that the President will sign the bill to repeal the rule if it reaches his desk. Following the House’s approval, a group of state attorneys general notified Senate leaders of their strong opposition to the resolution to repeal the rule. They urge lawmakers to carefully evaluate the resolution given that the CFPB’s study clearly supports the rule. Democrats also generally support the rule and look upon this effort to overturn as another means to justify dissolution of the CFPB.

ABS will continue to monitor and report on this and other important regulatory actions! Contact us at (405) 607-7000.