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CFPB Issues Rule to Ban Companies from Using Arbitration Clauses to Deny Groups of Their Day in Court
Tuesday, July 11, 2017 6:45 AM

Financial Companies Can No Longer Block Consumers from Joining Together to Sue Over Wrongdoing

The Consumer Financial Protection Bureau on Monday announced a new rule to ban companies from using mandatory arbitration clauses to deny groups of people their day in court. Many consumer financial products like credit cards and bank accounts have arbitration clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing.

Credit Union National Association President/CEO Jim Nussle issued the following statement about the new rule:

“CUNA is analyzing the CFPB’s final rule on arbitration. We are disappointed that the CFPB continues to apply new rules on credit unions when there is no evidence of consumer abuse by credit unions and as financial institutions that are member-owned, credit unions have a long history of working with their members to resolve disputes. The additional regulatory burden imposed on credit unions in response to abuses by other financial services providers further rigs the regulatory scheme in favor Wall Street banks and other abusers of consumers and does credit union members an incredible disservice.”

CFPB Arbitration Rule
According to the CFPB, by forcing consumers to give up or go it alone—usually over small amounts—companies can sidestep the court system, avoid big refunds, and continue harmful practices. The CFPB’s new rule will deter wrongdoing by restoring consumers’ right to join together to pursue justice and relief through group lawsuits.

CFPB says its new rule restores consumers’ right to file or join group lawsuits and deters companies from violating the law. Under the rule, companies can still include arbitration clauses in their contracts, but companies subject to the rule may not use arbitration clauses to stop consumers from being part of a group action. The rule includes specific language that companies will need to use if they include an arbitration clause in a new contract.

The rule also requires companies to submit to the CFPB certain records, including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration. The Bureau will collect correspondence companies receive from arbitration administrators regarding a company’s non-payment of arbitration fees and its failure to follow the arbitrator’s fairness standards. The CFPB says that gathering these materials will enable them to better understand and monitor arbitration, including whether the process itself is fair. The materials must be submitted with appropriate redactions of personal information. The Bureau intends to publish these redacted materials on its website beginning July 2019.

The new CFPB rule applies to the major markets for consumer financial products and services overseen by the Bureau, including those that lend money, store money, and move or exchange money. Congress already prohibits arbitration agreements in the largest market that the Bureau oversees: the residential mortgage market.

In the Military Lending Act, Congress also has prohibited such agreements in many forms of credit extended to servicemembers and their families. The rule’s exemptions include employers when offering consumer financial products or services for employees as an employee benefit; entities regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission, which have their own arbitration rules; broker dealers and investment advisers overseen by state regulators; and state and tribal governments that have sovereign immunity from private lawsuits.

The rule’s effective date is 60 days following publication in the Federal Register and applies to contracts entered into more than 180 days after that.

Get more information about the CFPB’s arbitration rule.

View the text of the arbitration rule.

View the CFPB video explaining the arbitration rule.