CFPB Finalizes Rule Dramatically Curtailing Arbitration Agreements

The Consumer Financial Protection Bureau today finalized a controversial rule that prohibits customers from waiving their ability to participate in class action suits and limits drastically the use of mandatory arbitration agreements for financial products and services. Banks of all sizes often include mandatory arbitration clauses in their credit card and deposit account agreements in order to manage the unpredictable costs of class action lawsuits and ensure prompt resolution of disputes.

American Bankers Association President and CEO Rob Nichols pushed back against the final rule. “We’re disappointed that the CFPB has chosen to put class action lawyers — rather than consumers — first with today’s final rule,” he said. “Banks resolve the overwhelming majority of disputes quickly and amicably, long before they get to court or arbitration.” He noted that the CFPB’s own research finds that arbitration is fair, as well as faster, more economical and more beneficial to consumers than class action litigation.

By sharply limiting the usefulness of arbitration clauses, the final rule means that arbitration is likely to disappear in financial services contracts. ABA has pointed to the burdens this will impose on customers whose claims cannot be resolved through class actions, instead requiring them to go to court for minor, non-systemic disputes.

The rule covers products and services provided by depository institutions, nonbank lenders and money transmitters that provide covered products to more than 25 consumers annually. It requires institutions that continue to employ arbitration to submit to the bureau certain claim records, agreements and arbitrator communications related to ongoing arbitrated disputes. The bureau will publish these redacted records on its website.

“Under this final rule, consumers lose,” Nichols added. “As Congress considers changes to the CFPB’s structure and accountability, we also urge lawmakers to overturn this rulemaking.” ABA will release a staff analysis of the final rule in the coming days. For more information, contact ABA’s Nessa Feddis or Jess Sharp.