On May 5, 2016, the Consumer Financial Protection Bureau (CFPB) announced proposed regulations that would prohibit financial service providers from using arbitration clauses that prevent consumers from bringing class action lawsuits. Under the CFPB’s proposal, companies would still be able to include arbitration clauses in their contracts, but the clauses would be required to expressly state that they cannot be used to prevent consumers from being part of a class action lawsuit.
In addition to the ban on class action waivers in consumer arbitration agreements, the proposed regulations would require companies that arbitrate disputes with consumers to submit information regarding arbitration claims, awards and related materials to the CFPB. The CFPB says that it will use this information to monitor arbitration proceedings to assess the necessity of increased future oversight.
The 90-day public comment period regarding the proposed rules commences when the proposal is published in the Federal Register. Given the rulemaking process, it is likely that the regulations would not take effect until sometime in 2017.
The CFPB proposal is extremely broad, potentially affecting a large segment of the financial services community – including banks, credit unions and a variety of other lenders. The prohibition on class action waivers combined with the administrative reporting burdens for individual arbitrations may cause financial services providers to re-evaluate their respective agreements and approach going forward. Companies that currently include arbitration provisions in their consumer agreements should be aware of the CFPB’s proposed rules and continue to monitor these developments.
LeClairRyan advises financial services providers on a variety of issues, including the use of arbitration agreements, and regularly represents and defends clients in class action and individual claims actions throughout the United States.