CFPB Requests Comments on Proposed Rules to Restrict Use of Mandatory Arbitration Clauses in Consumer Financial Contracts

The Consumer Financial Protection Bureau ("CFPB") requested comments on proposed rules that prohibit mandatory arbitration clauses denying entire classes of consumers the chance to take companies to court.

The proposed rule (i) prohibits covered providers of certain consumer financial products and services from using any agreement that allows the arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service, and (ii) requires a covered provider that is involved in an arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

Under the proposal, companies still would be able to include arbitration clauses in their contracts for the resolution of individual disputes. However, in contracts that are subject to the proposal, the clauses would have to state explicitly that they could not be used to stop consumers from being part of a class action in court. The proposal provides model language that must be used by companies.

The proposal is challenged by several members of the financial industry. According to American Bankers Association President Rob Nichols, the CFPB proposal "put[s] the future of arbitration at risk by requiring companies to face a flood of attorney-driven class action suits from which consumers receive virtually nothing."

Comments on the proposal are due 90 days after its publication in the Federal Register.

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