CFPB Arb Rule Appears Dead

Last night, Vice President Pence broke a 50-50 tie vote in the U.S. Senate, narrowly approving repeal of a rule that blocked financial companies from requiring consumers to resolve disputes with individual arbitration proceedings. The Senate vote followed earlier House approval and now goes to President Trump for his expected signature into law. The action is a defeat to the Consumer Financial Protection Bureau (CFPB), the federal financial industry watchdog group created under President Obama that approved the rule last summer with an effective date of March 19, 2018. It allowed consumer class actions against credit card companies and other financial institutions. The CFPB rule would have required sending a notice or to amend an arbitration agreement if entered into on or after March 19th and offered variable examples of language to use for agreements applying to multiple products or services, if not all were covered by the rule. According to the CFPB, there were two main parts: First, the final rule prohibited covered providers of certain consumer financial products and services from using an agreement with a consumer that provided 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 or service. Second, the final rule required covered providers 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 also adopted official interpretations to the proposed regulation. See full story here-- https://usat.ly/2h6FFIz and final rule language here-- http://bit.ly/2yKBRak

Divided Supreme Court Considers Workplace Arbitration

This week, the Supreme Court attempted to determine how far companies can go in insisting that disputes be resolved in individual arbitrations, rather than in court. The Court considered whether to give employers a powerful tool to bar class actions over workplace issues. The decision on this matter could affect some 25 million employment contracts according to the New York Times. A ruling in favor of employers, Justice Breyer said, could cut out “the entire heart of the New Deal” and undo an understanding of labor relations since the administration of FDR. Earlier cases ruled that companies doing business with consumers may require arbitration and forbid class actions in their contracts. Arbitration clauses with class-action waivers are commonplace in contracts for things like smartphones, credit cards, rental cars and nursing homes. Prior arbitration decisions have been closely divided, with conservative members in the majority. The justices now consider whether they should use a different approach for employment contracts. The answer depends on the interaction of two federal laws: the Federal Arbitration Act, which favors arbitration and the National Labor Relations Act, which protects workers’ rights to engage in “concerted activities.” Workers seeking to sue their employers for overtime pay and the like say the second law prohibits arbitration clauses that require class-action waivers. Reportedly, Justice Kennedy seemed ready to side with employers. Justice Gorsuch asked no questions. Justice Ginsburg said arbitration law was concerned with agreements between merchants of relatively equal bargaining power. The employment contracts at issue in the case, she said, have been forced on workers with "no true liberty of contract." In an unusual fashion, many cases were consolidated for a single oral argument and lawyers for the federal government actually appeared on both sides. Some justices suggested that workers could band together in a limited sense by hiring the same lawyer and filing individual arbitration cases. Justice Kagan suggested that was not good enough. See full article here-- http://nyti.ms/2yTgLUa Watch for decisions in: Epic Systems Corporation v. Lewis, No. 16-285, Ernst & Young v. Morris, No. 16-300 and National Labor Relations Board v. Murphy Oil USA, No. 16-307 which will be available this term here-- http://bit.ly/2yuxv7k

Banks Sue to Stop CFPB Arb Rule

Over a dozen U.S. banks and business groups sued the Consumer Financial Protection Bureau (CFPB) yesterday in an effort to block a new arbitration rule which goes into effect March 19, 2018 allowing consumer class actions against credit card companies and other financial institutions. The rule requires sending a notice or to amend an arbitration agreement if entered into on or after March 19th and offers variable examples of language to use for agreements that apply to multiple products or services, if not all are covered by the rule. The lawsuit, filed in the Texas, calls the structure of the CFPB, a watchdog agency established in response to the 2008 financial crisis, unconstitutional. Filed on behalf of the U.S. Chamber of Commerce, American Bankers Association and other groups, the suit argues the rule to be imposed on U.S. businesses will not help consumers and the change would actually hurt consumers. According to the lawsuit, "Arbitration gives consumers the ability to bring claims that they could not realistically assert in court, including the small and individualized claims that they care the most about. In contrast, class-action litigation is significantly less effective than arbitration in addressing consumer claims." The CFPB has defended the rule as a necessary protection for consumers. Reportedly, the CFPB is also being criticized by another regulator, the Office of Comptroller of the Currency (OCC). The CFPB arbitration rule could cause the interest rates on credit cards to rise significantly — as much as 25%, according to the OCC, which oversees the banking sector. See full story here-- http://lat.ms/2yglm5G and http://bit.ly/2x2OIV3

Consumer Reports Calls for Ban on Forced Arbitration

Calling arbitration an anti-consumer practice that’s becoming all too prevalent, Consumer Reports claims there isn't a single adult in the United States who is not subject to at least one binding mandatory arbitration clause. The magazine, through Consumers Union, its policy and advocacy arm, criticizes the take-it-or-leave-it way of settling disputes. Consumer Reports, which calls itself a public-service organization, says arbitration language is hidden in the fine print of an array of common consumer contracts, including cell phones and credit cards. The editors are disturbed that forced arbitration clauses are making their way into housing, employment, and nursing-home contracts. Their column states that proponents include corporations and the organizations representing arbitrators who frame arbitration as a benefit for consumers that offers a low cost, informal alternative to lawsuits. Forcing consumers to accept arbitration and give up their rights through legalese buried in the fine print raises red flags for consumer advocates, they say. Consumer Reports is backing the Arbitration Fairness Act, pending in Congress, that would ban the use of these forced-arbitration clauses in consumer and employment contracts. See editorial here- http://www.consumerreports.org/cro/news/2014/05/ban-the-use-of-these-forced-arbitration-clauses-in-consumer-and-employment-contracts/index.htm