The much-anticipated rule targets providers of certain consumer financial products and services, prohibiting them from using arbitration clauses in customer contracts to block consumers from participating in class action lawsuits. Such clauses often force consumers to settle complaints with financial companies through mediated arbitration, instead of filing a class-action lawsuit.
The final rule also requires any financial service provider involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB, which will post them on its website beginning in July 2019.
The CFPB claims that class action waivers prevent consumers from having their day in court, thus enabling companies to avoid making consumers whole and to continue to engage in allegedly harmful practices. According to the CFPB, banning mandatory arbitration clauses “also deters companies from violating the law.”
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. You can read the 775-page rule here.
Here’s are some early responses to the new rule:
- House Financial Services Chair Jeb Hensarling issued a press release calling for Congress to overturn the rule using the Congressional Review Act: “As a matter of principle, policy, and process, this anti-consumer rule should be thoroughly rejected by Congress under the Congressional Review Act.”
- The US Chamber of Commerce declared the rule a “Prime Example of Agency Gone Rogue.”
- The New York Times reports that the rule will strike a “serious blow to Wall Street and could wind up costing financial firms billions of dollars.”
- The American Financial Services Association issued a press release announcing that it is “disappointed that the CFPB has finalized a rule on arbitration that ignores its own research and harms consumers, while enriching plaintiff’s attorneys.”
- The Hill reports that “Business groups are already speaking out against the rule and promising action against it.”
- Rachel Witkowski of the Wall Street Journal writes, “The CFPB’s move to complete the rule is likely to set off a political fight.”
- C. Ryan Barber from the National Law Journal says, “the rule’s fate is far from certain.”
- American Banker released an article with a headline that reads, “Fight over CFPB arbitration rule may just be starting.”