The Consumer Financial Protection Bureau (CFPB) has released a final rule that restricts the use of arbitration clauses in financial contracts. Specifically, the final rule prohibits companies from utilizing mandatory arbitration clauses that prevent consumers from entering class action or multiparty lawsuits against the company for wrongdoing. CFPB Director Richard Cordray stated, “[a]arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong,” and the “new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together.”
Under the final rule, a financial product or service is defined as covered if it is provided to consumers primarily for personal, family, or household purposes, or is offered with another financial product or service that provides for these purposes. The financial product and service must also be included in the final rule’s list of covered consumer financial product and services. The final rule’s list includes, among others, consumer asset accounts such as deposit accounts and prepaid accounts, remittance transfers, acceptance of financial data for the purpose of initiating certain payments or card charges, and providing check cashing, check guaranty, or check collection services.
In addition, the final rule requires that during arbitration, providers of pre-dispute arbitration agreements must submit certain records to the CFPB related to claims and awards made in arbitration. These records include: (1) specified records filed in any arbitration or court proceeding in which a party relied on a pre-dispute arbitration agreement entered into on or after the compliance date; (2) communications the provider received from an arbitrator regarding a pre-dispute arbitration agreement entered into on or after the compliance date that does not comply with an arbitrator’s due process or fairness standards; and (3) communications the provider received from an arbitrator regarding a dismissal or refusal to administer a claim due to the provider’s failure to pay required filing or administrative fees. This information will be used by the CFPB to continuously monitor arbitration and court proceedings to determine whether there are developments that raise consumer protection concerns that warrant further action by the CFPB.
The regulation is effective 60 days after the date of publication in the Federal Register. Mandatory compliance is required for pre-dispute arbitration agreements entered into between 60 to 181 days after the date of publication in the Federal Register.