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The CFPB's Proposed Rules on Consumer Financial Arbitration

posted by Mark Weidemaier

As has been expected for some time, the Consumer Financial Protection Bureau has issued a proposed rule that would prohibit companies providing consumer financial services from pairing arbitration clauses with clauses that prohibit consumers from bringing or participating in class actions. The rule also imposes disclosure requirements on companies that use arbitration. The CFPB's announcement is here; the proposed rule is here. There are two main components.

First, covered providers of consumer financial products can still include pre-dispute arbitration clauses in their contracts, but those who do must explicitly state that the consumer retains the right to bring or participate in a judicial class action. The rule requires that the following language be included in the contract: "We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action even if you do not file it." (As an aside, the CFPB rule only applies to class actions brought in court. Companies may forbid class action proceedings in arbitration, and I imagine that careful drafters will want to do so expressly.) Second, the Bureau proposes to require covered providers to submit information about claims filed by or against them in arbitration, including copies of the arbitration demand, any response, and the arbitrator's award (see p. 362-363 of the proposal). The Bureau apparently hasn't made up its mind about whether it will make this information public or will merely use it to monitor arbitration proceedings. 



Now if we could walk back some of the damage Scalia did with his war against the safeguards against adhesion contracts.

The banks can get a lot of the same benefits from including a two-way fee shifting provision in all their loan docs. This would include a consent to the posting of bond to secure any obligation to to pay the other side's legal fees. This would run counter to a lot of bank culture - where one-way legal fee provisions are deeply rooted - but would have the effect of eliminating a lot of weak class actions. (I assume that plaintiffs' counsel with strong claims could find a financing party willing to provide money for the bond in exchange for a piece of the action.)

As a consumer lawyer I will frequently bring an individual case in court where a class action would be possible, when my client just wants a quick settlement, and I'm okay with that too. You can't go thermonuclear on every single case.

This could presumably force me into filing a class action (where an individual case would get kicked over to arbitration but class actions could still be filed in court).

I also wonder how it would play out where, as a lawyer, I file a class action complaint, but then, as a lawyer, in my discretion and using my legal judgment, I choose not to file a motion for class certification and instead proceed on an individual basis.

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