Friday, July 14, 2017

CFPB Arbitration Rule Final

This week, new arbitration rules were finalized by the Consumer Financial Protection Bureau (CFPB). The right of parties to avoid court and arbitrate contractual disputes comes from the Federal Arbitration Act of 1925. It provides that agreements to arbitrate disputes are enforceable. Decades after becoming a standard form of alternative dispute resolution, arbitration clauses were employed as a method to defeat class action lawsuits. Where parties agreed to arbitrate disputes, claims could still be brought, but on an individual basis in arbitration. The new rules by CFPB allow class-action lawsuits by consumers. The CFPB aims to prohibit financial companies from using mandatory arbitration clauses as a way to block class-action lawsuits, in which a large number of plaintiffs with similar complaints band together. This could result in higher litigation costs for banks, which they may offset either by raising the costs of consumer loan products or reducing services. Arbitration clauses have become widespread in recent years, aided by a string of court rulings that have limited the ability of consumers to file lawsuits. The agency’s action is the first significant check on arbitration since recent U.S. Supreme Court decisions that affirmed its widespread use. The new rules restore the ability of groups of people to file or join group lawsuits. The rules apply to most banks and nonbank lenders, payment processing companies, consumer reporting agencies, debt collection agencies and certain automotive finance companies. If Congress soon passes legislation neutering or killing the CFPB via the Congressional Review Act, it won’t be the first reversal of financial regulation. Until then, August 10, 2017 is the effective date. Pursuant to the Dodd-Frank Act, the arbitration rules will only apply to agreements entered into 180-days after the effective date and it will become fully effective on February 10, 2018. See more here-- and and