In response to a petition filed last week by a number of consumer advocacy groups, the Consumer Financial Protection Bureau (CFPB or Bureau) announced that it will be seeking public input on a possible rule that would curtail mandatory pre-dispute arbitration provisions.

On September 14, the National Association of Consumer Advocates, Public Citizen, the American Association for Justice, Public Justice, the National Consumer Law Center, Consumer Federation of America, the UC Berkeley Center for Consumer Law & Economic Justice, Americans for Financial Reform, and Better Markets, Inc. (collectively the “consumer advocacy groups) submitted a Petition for Rulemaking requesting that the CFPB promptly issue a rule addressing the use of mandatory pre-dispute arbitration provisions in contracts that would “allow the consumer to make a meaningful choice on whether to use arbitration after a dispute arises.” Specifically, the consumer advocacy groups advocate for a rule that would allow consumers to choose between arbitration and litigation after the dispute arises and up until the time arbitration proceedings begin.

In response to a Bloomberg Law article, the CFPB stated “Americans are overwhelmed by increasingly lengthy, complex, and one-sided fine print in form contracts. The CFPB is focused on companies that use fine print to extract extra money, lock people into unwanted business relationships, gain advantage they could not obtain in fair and competitive markets, or circumvent the rule of law … We are carefully considering the proposal relating to arbitration clauses, and will be opening a public docket and taking comment from the public on the proposal.”

Our Take:

As discussed here, in 2017 the CFPB promulgated the Arbitration Agreements rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorized the CFPB to “prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties.” The Arbitration Agreements rule would have prohibited class action bans in arbitration clauses. Under the Congressional Review Act (CRA), however, a rule promulgated by an administrative agency “shall not take effect (or continue), if the Congress enacts a joint resolution of disapproval.”

The day after the CFPB promulgated the Arbitration Agreements rule, Congressman Keith J. Rothfus (R-Pa.) introduced H.J. Res. 111, a joint resolution of disapproval. The measure prevailed and President Trump signed into law H.J. Res. 111 on November 1, 2017, thereby invalidating the Arbitration Agreements rule. An argument could be made that the proposed rulemaking would be barred by the CRA because it is “substantially the same” as the earlier rule that Congress vetoed.

In their petition, the consumer advocacy groups attempted to get ahead of the argument that the proposed rule is “substantially the same” as the earlier rule and accordingly foreclosed by the CRA. They assert that the CFPB’s 2017 rule prohibited class action bans in arbitration clauses while the newly proposed rule would not address class action bans and would instead give consumers the right to make the choice about dispute resolution after a dispute arises. Whether this distinction is enough to satisfy CRA muster remains to be seen.

What also remains to be seen is whether the CFPB actually pursues a rulemaking on this topic. Simply opening a docket and taking public comments on the petition does not necessarily mean that the Bureau will be taking any action at all on the arbitration front. We will continue to watch this issue, but for now, it’s too soon to draw any firm conclusions about what may happen.

Photo of David N. Anthony David N. Anthony

David Anthony handles litigation against consumer financial services businesses and other highly regulated companies across the United States. He is a strategic thinker who balances his extensive litigation experience with practical business advice to solve companies’ hardest problems.

Photo of Anthony Kaye Anthony Kaye

Tony counsels financial services providers on compliance issues, including military lending laws, defends clients facing government investigations, examinations and enforcement actions, and defends individual and class action lawsuits brought by consumers. Clients appreciate Tony’s collaborative, common-sense and cost-effective approach to evaluating and solving

Tony counsels financial services providers on compliance issues, including military lending laws, defends clients facing government investigations, examinations and enforcement actions, and defends individual and class action lawsuits brought by consumers. Clients appreciate Tony’s collaborative, common-sense and cost-effective approach to evaluating and solving problems.

Photo of Jeremy Rosenblum Jeremy Rosenblum

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products…

Jeremy focuses his practice on federal and state lending and consumer practices laws, with emphasis on the interplay between federal and state laws, joint ventures between banks and nonbank financial services providers, the development and documentation of new financial services products (especially products designed to serve the needs of unbanked and under-banked consumers), bank overdraft practices and disclosures, geographic expansion initiatives, and compliance with federal and state consumer protection laws, including statutes prohibiting unfair, deceptive and abusive acts and practices (UDAAP); usury laws; the Truth in Lending Act (TILA); the Electronic Funds Transfer Act; E-SIGN; the Equal Credit Opportunity Act; and the Fair Credit Reporting Act (FCRA).

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Photo of Alan D. Wingfield Alan D. Wingfield

Alan Wingfield helps consumer-facing clients navigate compliance, litigation and regulatory risks posed by the complex web of state and federal consumer protection laws. He is a trusted advisor and tireless advocate, helping clients develop practical compliance and dispute-resolution strategies.