House Votes to Rescind CFPB Arb Rules

A joint resolution of disapproval by Congress could nullify the “Arbitration Agreements” rule, 82 Fed. Reg. 33210 (July 19, 2017), just finalized by the Consumer Financial Protection Bureau (CFPB). The rules bar certain financial institutions from using contract clauses that provide for arbitration of disputes with customers to restrict participation in class-action lawsuits. 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. The new rules by CFPB allow regular 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. The new rules apply to most banks and nonbank lenders, payment processing companies, consumer reporting agencies, debt collection agencies and certain automotive finance companies. 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. The Senate will take up the issue next via the Congressional Review Act, under which Congress may overturn a broad range of regulatory rules issued by federal agencies by enacting a joint resolution of disapproval within 60 days of the rules being announced. See more here-- http://bit.ly/2uCuiha and http://bit.ly/2uYGM4Q

Wells Fargo Arb Clauses Fair Game in Fraud Cases?

The well-publicized Wells Fargo fraudulent account creation cases are being defended with lawyers arguing for application of arbitration clauses signed when customers opened their legitimate accounts. Plaintiffs argue the cases should be in court rather than arbitrated. Now Congress may weigh in with legistlation to carve out the cases. Lawmakers want consumers to be able to sue the bank in court over the fake account scandal rather than go through private arbitration. A bill introduced by Senate Banking Committee Ranking Minority Member Sherrod Brown and Congressman Brad Sherman called the Justice for Victims of Fraud Act of 2016 goes against the mandatory arbitration clauses that prevent customers from suing Wells Fargo. The case is pending in the U.S. District Court in Utah which has been asked in a motion to dismiss to order customers suing the bank to resolve their issues via arbitration. Wells Fargo is reportedly providing mediation services to affected customers for free. According to the bank, if a resolution is not reached, the arbitration clause allows for a forum in which customer disputes are heard and resolved quickly and efficiently with a neutral, third-party. This is the first class action lawsuit filed against Wells since it agreed to pay a $185 million penalty and return $5 million to customers for opening up to two million deposit and credit-card accounts in their names without their permission. The penalty by the Consumer Financial Protection Bureau (CFPB) is the largest fine levied from the government agency over account opening practices. According to an investigation by the CFPB, Wells Fargo employees not only made fake deposit accounts, but also submitted 565,443 unauthorized credit card account applications on behalf of unknowing customers. It’s estimated that 14,000 of those accounts accrued $403,145 in fees. Through its own independent investigation, the bank discovered a total of $2.6 million in unauthorized fees. Obviously, a new Congress and President next month could stymie this effort. See more here-- http://bit.ly/2hspkMj

Congress Considers Arbitration

This month, U.S. Senator Patrick Leahy introduced the Restoring Statutory Rights Act and Interests of the States Act of 2016. If it becomes law, it would exempt from the Federal Arbitration Act (FAA) claims brought by individuals or small businesses arising from violations of federal or state law, the U.S. Constitution or a state constitution. Accordingly, it would permit these claims to proceed in a court of law. Apparently, under the measure, arbitration is still an option if the parties voluntarily choose to arbitrate a dispute after it arises. The bill would also allow federal and state courts to apply their respective jurisdictional laws concerning contract interpretation to find arbitration provisions unconscionable or unenforceable, notwithstanding the FAA. Finally, courts, not arbitrators, would have the essential task of determining and enforcing arbitrability. Congress is also considering the Arbitration Fairness Act of 2015, introduced last year by Senator Al Franken, which would prohibit the use of forced arbitration in consumer and employment disputes. That bill is still in committee, as is a companion bill in the House of Representatives. These Members of Congress take issue with recent majority decisions by the U.S. Supreme Court upholding federal preemption under the FAA. Arbitration remains a worthy alternative to litigation and perhaps these efforts, which pertain mainly to consumer disputes, will stop the backlash that has seemingly taken place and given the whole process a bad name. See more on S. 2506 and S. 1133 here-- www.congress.gov

Arbitration Fairness Act of 2015

There is a new bill in Congress to amend Title 9 of the United States Code with respect to arbitration over which increasing debate on fairness as a pre-dispute agreement has intensified. The Arbitration Fairness Act of 2015 was introduced by Minnesota Senator Al Franken and Georgia Representative Hank Johnson to eliminate mandatory arbitration clauses in employment, consumer, civil rights and antitrust cases. Companies provide almost all consumer financial products and services under written contracts with such clauses. Arbitration agreements in those contracts often require that parties resolve any subsequent disputes through privately-appointed arbitrators, rather than through the court system. The use of arbitration clauses has increased with recent U.S. Supreme Court decisions supporting corporate enforcement efforts of those agreements. A Consumer Financial Protection Bureau (CFPB) report found that 75% of consumers surveyed did not know if they were subject to an arbitration clause in their credit card contract. Among consumers whose contract included an arbitration clause, fewer than ten percent recognized that they could not sue their credit card issuer in court. It is claimed so-called "forced arbitration" does not provide important procedural guarantees of fairness and due process that are the hallmarks of courts of law. According to Senator Franken’s office, the Arbitration Fairness Act would restore the intent of the original Federal Arbitration Act (FAA) passed by Congress in 1925. When the FAA was passed, it was intended to target commercial arbitration agreements between two companies of generally comparable bargaining power. Over the years, court decisions broadened the reach of the law to include consumer and employment disputes. Under the newly introduced Arbitration Fairness Act of 2015, agreements to arbitration of employment, consumer, civil rights and antitrust disputes could only be made after the dispute has arisen. The Act does not prohibit companies and consumers from going to arbitration to settle a dispute once the dispute has actually taken place. The Act reportedly seeks to ensure transparency in civil litigation by protecting the integrity of Civil Rights Act, the Equal Pay Act, the Americans with Disabilities Act, and the Age Discrimination in Employment Act, among others. The Act would continue to allow pre-dispute mandatory arbitration to continue in business-to-business agreements, and does not apply to collective bargaining agreements. The National Consumer Law Center and the National Association of Consumer Advocates support the new measure. Both proponents and critics of the new act take hard-line stances on the perceived ills or benefits of arbitration, rather than trying to address some criticisms while preserving its benefits. Under the Bill, the applicability of an agreement to arbitrate and the validity and enforceability of an agreement is to be determined by a court, rather than an arbitrator, irrespective of whether the party resisting arbitration challenges the arbitration agreement specifically or in conjunction with other terms of the contract containing such agreement. See proposed legislation here-- http://1.usa.gov/1GC7gEr and CFPB report to Congress here-- http://1.usa.gov/1EPG8nT