Banking & Finance Law Report

Archives: Contract Law

Subscribe to Contract Law RSS Feed

New CFPB Rule Limiting Arbitration Clauses Faces Possible Congressional Veto


The enforceability of arbitration clauses in financial contracts took a hit from the Consumer Financial Protection Bureau (the “CFPB”) this week, but threatened congressional action may undo the effects of the CFPB’s newest regulation before it takes effect.

The CFPB Rule

 On Monday, July 10, the CFPB issued its final rule limiting pre-dispute arbitration agreements in certain financial contracts, in an effort to strengthen financial consumers’ access to class actions. The rule, codified at 12 CFR part 1040, imposes several requirements on providers of certain financial services, including extensions of consumer credit, participating in credit decisions, and referring applicants for consumer credit to creditors:

(1) The provider is prevented from relying on pre-dispute arbitration agreements with respect to class actions until the presiding court in the dispute has ruled that the case may not proceed as a class action;

(2) The provider must include language in its pre-dispute arbitration agreement preserving the consumer’s rights to a class action and notifying the consumer of the same; and…

Liquidated Damages Provisions Are Enforceable Despite As Applied Inequities

Bankers and other business persons should carefully consider a significant change this year to the state’s law regarding contractual default clauses. The change was made by a little-noticed Ohio Supreme Court decision that requires the fairness of such clauses to be assessed from the perspective of the relationship of the parties at the beginning of the contract.  In the case at issue this led to enforcement of an extreme damages claim.

These clauses are commonly called “liquidated damages clauses” because they impose a definite economic cost on the defaulting party when a contract is breached. Such clauses are ubiquitous.  They are most frequently found in construction contracts and in public construction contracts they are often required by the law applicable to governmental bodies.  The clauses are also found in other types of business contracts frequently encountered by bankers such as IT vendor contracts, consulting contracts, contracts for the supply and delivery of equipment, and other contracts for the sale of goods and services where time is of the essence.…

LexBlog