Consumer Financial Protection Bureau Bans Class Action Waivers in Arbitration Clauses

Michael A. Iannucci and Richard Wolf

While questions remain about the Consumer Financial Protection Bureau’s (“CFPB”) future power, the agency, which was created by the Dodd-Frank Act in the wake of the 2008 economic crash, issued a powerful Final Rule that will ban companies from using class action waivers in arbitration clauses. The Final Rule will go into effect 60 days after its publication in the Federal Register, and arbitration agreements entered into 180 days after publication must comply with the new rule. Retail clients, banks and financial institutions, debt collectors, and credit card companies may be most impacted by the new rule, as they often utilize these arbitration clauses in consumer agreements as a less expensive—and private—alternative to litigation. The CFPB, which has faced intense scrutiny from the Trump Administration as well as challenges in federal courts,[1] reasoned that class action litigation waivers effectively foreclose consumers from pursuing small-dollar disputes on an individual basis because doing so is not cost effective.

While the Final Rule does not preclude companies from using arbitration clauses, the CFPB is also imposing new requirements on arbitrations in single plaintiff cases. For example, the Final Rule will force companies to submit information to the CFPB about individual cases. That information—which includes claims, counterclaims, answers and, most critically, any awards—will then be published on the CFPB’s website. In addition, the CFPB will require that companies submit records concerning arbitration requests, including motions to compel arbitration filed in individual cases. This information, assuming Congress does not invalidate this Final Rule, will be posted beginning in July 2019.

This Final Rule will apply nationwide, and New Jersey retailers and financial institutions should take notice. They should begin to review their consumer agreements now to ensure that they are in compliance with the Final Rule once the compliance period begins, 180 days after publication in the Federal Register.

[1] See, e.g., PHH Corp. v. Consumer Fin. Prot. Bureau, 839 F.3d 1 (D.C. Cir. 2016) (finding structure of CFPB unconstitutional), vacated and rehearing en banc granted, No. 15-1177, Order (Feb. 16, 2017), available at https://www.cadc.uscourts.gov/internet/opinions.nsf/5D0253C4E25B93FB852580C9005F3AE1/$file/15-1177-1661681.pdf.