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The Consumer Finance Protection Bureau Takes Aim at Class Action Waivers in Arbitration Clauses

The Consumer Finance Protection Bureau (CFPB) last week announced its intent to launch a rulemaking process that would prohibit companies from using arbitration clauses that waive class action lawsuits. The CFPB's proposal would apply generally to all of the consumer financial products and services that the CFPB oversees, including credit cards, checking and deposit accounts, certain auto loans, small-dollar or payday loans, private student loans, and some other products and services as well.

section of the Dodd-Frank Act directed CFPB to study "the use of agreements providing for arbitration of any future connection with the offering or providing of consumer financial products or services" and to provide a report to Congress on that subject. The CFPB published its Arbitration Study in March of this year, and relied upon the study to support the rules proposals it announced on October 7, 2015.

The CFPB's proposed rules will undo the U.S. Supreme Court's AT&T Mobility v. Concepcion decision, and weaken the protections afforded by the Federal Arbitration ActIn Concepcion, the Supreme Court ruled, by a 5-4 margin, that the Federal Arbitration Act preempts state laws that prohibit contracts from disallowing class-wide arbitration. As a result of Concepcion, and other Supreme Court decisions on the subject over the past five years, many companies have modified their arbitration agreements to include specific language prohibiting class or mass action claims. Businesses that include class action waivers in their arbitration agreements can require consumers to bring claims only in individual arbitrations, rather than in court as part of class action litigation.

Under the CFPB's proposal, companies could still use an arbitration clause, but only to the extent that the clause applies on an individual basis. Further, companies would have to say explicitly that the arbitration clause does not apply to cases brought on behalf of a class unless and until class certification is denied by the court or the class claims are dismissed. In other words, at least at this time, the CFPB is not attempting to prohibit the use of arbitration clauses totally, just those that would preclude customers from bringing class-wide claims.

If adopted, the CFPB’s proposed rules would have far reaching effects on businesses that rely on arbitration clauses in their contracts. Companies that rely on arbitration agreements in their contracts should seek legal counsel as to whether the scope of the CFPB's proposed rules may impact their company’s use of arbitration clauses. Companies subject to the CFPB's rules should consider submitting comments to the CFPB on how the proposed rules will impact their company.

© Copyright 2022 Armstrong Teasdale LLP. All rights reserved National Law Review, Volume V, Number 290

About this Author

Bill Ojile, Litigator, Armstrong Teasdale Law Firm

Bill Ojile, a member of the Litigation practice group, has over 25 years of experience advising, counseling and litigating on behalf of companies, often in highly regulated environments, helping them to resolve difficult legal and policy issues. 

He has managed significant disputes both as in-house and outside counsel. These disputes have required Bill to oversee large teams of people managing legal, administrative, public relations and legislative issues, as well as formulating strategic direction, often simultaneously. For example, as General Counsel of Westwood College he managed...

Henry Baskerville, Litigator, Trial Attorney, White Collar Criminal, Higher Education, Armstrong Teasdale Law Firm
Of Counsel

Henry Baskerville, of counsel to the Litigation practice group, is an experienced trial attorney who focuses on white collar criminal, complex commercial cases, and higher education. 

In the white collar area, Henry handles both the defense at trial and appeal of bank, mail, securities and tax fraud matters, as well as public corruption charges. 

As part of his practice, Henry conducts internal investigations of entities and institutions concerned about potential violations of the law or those that are already facing government probes. When a wrongdoing is detected, Henry...