CFPB Proposed Rule Aims to End Forced Arbitration in Class Actions for Financial Products and Services

On May 5, 2016, the Consumer Financial Protection Bureau (CFPB) proposed a new rule that consumer contracts with arbitration requirements must include a notice to consumers that class actions can be brought to court because they are not affected by arbitration requirements. As the CFPB only has jurisdiction over consumer financial products, the proposed rule grants consumers the right to file or participate in class action lawsuits concerning financial products and services.

Today, companies generally include arbitration requirements in consumer contracts, “forcing” consumers to waive their rights to bring or participate in a class action lawsuit. By signing the contract, often without reading the fine print, consumers “consent” to resolve any future dispute with the company in arbitration proceedings. Additionally, companies choose the arbitration company named in the contract. As arbitration proceedings are outside of the legal system, it is private, without a right to appeal, public review, judge, or a jury to ensure a fair and just outcome. Further, arbitrators do not need to take the law or legal precedent into account in making decisions.

In 2015, the CFPB study concluded that “arbitration agreements are being widely used to prevent consumers from seeking relief from legal violations on a class basis, and that consumers rarely file individual lawsuits or arbitration cases to obtain such relief.” See  CFPB Proposed Rule 1040 here. Congress directed the CFPB to study pre-dispute arbitration agreements under the Dodd-Frank Wall Street Reform and Consumer Protection Act to protect consumers and the public interest, CFPB crafted proposed rule 1040 so that consumers can file or participate in class actions concerning financial products and services. Therefore, as some companies primarily use arbitration clauses to prevent class action lawsuits, the proposed rule may motivate companies to stop using arbitration clauses in consumer contracts altogether.

To submit your comment on CFPB Proposed Rule 12 CFR 1040, identified by Docket No. CFPB-2016-0020 or RIN 3170-AA51, use any of the following methods:

  • Email: FederalRegisterComments@cfpb.gov. Include Docket No. CFPB-2016-0020 or RIN 3170-AA51 in the subject line of the email.
  • Electronic: http://www.regulations.gov. Follow the instructions for submitting comments.
  • Mail: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street, NW., Washington, DC 20552.
  • Hand Delivery/Courier: Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street, NE., Washington, DC 20002.

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