In a move long anticipated by the industry, the Consumer Financial Protection Bureau (CFPB) on October 7, 2015 proposed to ban class action waivers in consumer financial contracts. Although the proposed ban would not take effect for a few years, it could lead to an increase in consumer class action lawsuits—some of which have been held in check by class action waiver provisions in recent years. According to the CFPB, more than half of credit card contracts and 44 percent of checking account agreements contain arbitration clauses, and these provisions are common in auto finance contracts as well.
The CFPB’s announcement came in the form of a 34-page “outline of proposals” that must be reviewed by a Small Business Review Panel before the CFPB can begin formal rulemaking. Announcing the proposal, CFPB Director Richard Cordray criticized class action waivers as a “free pass that prevents consumers from holding their financial providers directly accountable for the harm they cause when they violate the law.” But industry representatives have argued that class action waivers protect the industry from frivolous class litigation.
Key takeaways:
- Ban Will Likely Take Effect in 2018, Will Not Affect Existing Contracts
- Proposal Follows March 2015 Report to Congress that Foreshadowed a Proposed Ban
- Silver Lining in CFPB Preserving Mandatory Pre-Dispute Arbitration Clauses for Individuals
- Consumer Facing FinTech Companies Should Focus on Consumer Compliance and Anticipate an Increase in Class Action Litigation
Read more about the CFPB’s proposal in our client alert.