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…