CFPB Issues Final Rule on Arbitration

7/10/2017 5:48 PM

ACA International strongly opposed the rule in comments submitted last year and maintains the CFPB can achieve goals required by the Dodd-Frank Act through actively monitoring arbitrations and taking appropriate enforcement actions.


The Consumer Financial Protection Bureau issued a final rule to ban class action waivers in arbitration agreements in contracts for consumer financial products.

Under the rule, issued more than two years after the CFPB started discussion of the ban and held field hearings on the subject, “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,” according to the CFPB.

Under the rule, the CFPB will also require companies to submit certain records in an effort to make the individual arbitration process more transparent. The records include including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration, according to the CFPB.

The CFPB intends to publish materials, with personal information redacted, on its website beginning in July 2019.

In October 2016, ACA International submitted comments strongly opposing the proposed rule from the CFPB. In its comments, ACA urged the CFPB to withdraw the rule and take a more balanced approach that will allow it to achieve the same public policy goals that it purports to achieve through a ban on class action waivers, but in a way that preserves individual arbitration, does not run afoul of explicit congressional directives, and is fair for consumers and compliance-minded businesses.

The rule will be in effect 60 days after publication in the Federal Register and applies to contracts entered into more than 180 days after that.

However, there is the possibility Congress could overturn the rule using the Congressional Review Act.

The CRA allows legislators to reverse recently finalized rules within a set timeframe based on a simple majority, which Republicans have in both the House and Senate, and the president’s approval.

“I am, of course, aware of those parties who have indicated they will seek to have the Congress nullify this new rule. That is a process that I expect will be considered and determined on the merits,” CFPB Director Richard Cordray said in remarks on the final rule. “My obligation as the Director of the Consumer Bureau is to act for the protection of consumers and in the public interest. In deciding to issue this rule, that is what I believe I have done.”

Last year, ACA and 28 other industry associations and organization also submitted a letter to the CFPB requesting it withdraw the rule when it was proposed, or at a minimum, adopt a more tailored approach that would preserve consumers' access to arbitration.

Despite the CFPB’s mischaracterization of arbitration as harmful to consumers, arbitration actually benefits consumers by reducing the time to achieve a resolution of claims brought by or against consumers, decreasing the expenses of all parties to the arbitral proceeding as compared to litigation, and limiting the legal and administrative fees of formal litigation. In addition, as ACA has also pointed out to the CFPB, Fair Debt Collection Practices Act cases are uniquely suited to streamlined, effective adjudication through arbitration. 

ACA is actively analyzing the final arbitration rule and will continue to advocate on behalf of the debt collection industry on this issue.

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