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CFPB Finalizes Arbitration Prohibition Rule; Showdown With Congress Looms

On July 10, 2017, the Consumer Financial Protection Bureau finalized its long-anticipated—and controversial—rule ("Arbitration Rule") prohibiting certain financial service providers from using an arbitration agreement with a consumer for arbitration of a future dispute to bar the consumer from filing or participating in a class action with respect to the financial product or service. The rule would also require financial service providers to submit certain of their arbitration records to the CFPB, which would then post this information on its website.

The Arbitration Rule would apply primarily to consumer products, that is, a financial product or service offered to consumers primarily for personal, family, or household purposes (e.g., residential mortgages) or provided in connection with such product (e.g., credit life or disability insurance). The Arbitration Rule does not prohibit the use of arbitration agreements or clauses. Instead, under the Arbitration Rule, financial service providers are required to include certain language in such agreements or clauses that informs consumers that the agreement may not be used to block class actions. If the agreement does not contain such language, the service provider will have 60 days to amend the agreement or notify the consumer of his or her rights.

Finally, the Arbitration Rule requires a service provider to submit to the CFPB (1) specified records filed in any arbitration or court proceedings in which a party relies on a pre-dispute arbitration agreement entered into on or after the compliance date of the Arbitration Rule, (2) communications the provider receives from an arbitrator determining that a pre-dispute arbitration agreement entered into on or after the compliance date of the Arbitration Rule does not comply with an arbitrator’s due process or fairness standards, and (3) communications the provider receives from an arbitrator regarding a dismissal of or refusal to administer a claim due to the provider’s failure to pay required filing or administrative fees. The CFPB will then post this information on its publicly available website. 

On Capitol Hill, two Republican senators, Mike Crapo (who chairs the Banking Committee) and Tom Cotton (a Banking Committee member), have announced plans to draft a resolution of disapproval to overturn the Arbitration Rule under the Congressional Review Act. Representative Jeb Hensarling, who chairs the House Financial Services Committee, also stated that the Arbitration Rule "should be thoroughly rejected by Congress under the [CRA]."

© 2018 Jones Walker LLP


About this Author

Neal C. Wise, Jones Walker, Corporate Counsel Lawyer, financial institutions attorney

Neal Wise is an associate in the firm’s Banking & Financial Services and Business & Commercial Transactions Practice Groups. His practice focuses on the representation of financial institutions, such as banks and bank holding companies, and on the transactional and general corporate needs of other corporate clients. For his financial institution clients, Mr. Wise handles numerous transactions, including public and private mergers and acquisitions, public and private capital raises, branch acquisitions and dispositions, and general corporate needs. His practice...