On July 10, 2017, the Consumer Financial Protection Bureau (the “CFPB”) finalized its proposed arbitration rule that will prohibit providers of certain consumer financial products and services from requiring a consumer to utilize mandatory pre-dispute arbitration in lieu of a consumer filing or participating in a class action (“Arbitration Rule”). In other words, no longer may covered entities require a consumer to use arbitration in lieu of class action participation. This Arbitration Rule will likely have far ranging consequences for covered providers, including mandatory updates to consumer agreements, likely increases to legal and compliance costs and increased operational risks in new consumer products.
Congress directed the CFPB to study pre-dispute arbitration agreements in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“the Dodd-Frank Act”). The Dodd-Frank Act also authorized the CFPB, after completing the study, to issue regulations restricting or prohibiting the use of arbitration agreements if the CFPB found that such rules would be in the public interest and for the protection of consumers. In 2015, the CFPB published and delivered to Congress a study of arbitration. On May 24, 2016, the CFPB proposed the Arbitration Rule with a request for comment. Since May 2016 the CFPB has been silent, leading many in the financial services industry to believe that, with the change in administration, the CFPB had abandoned the Arbitration Rule. In finalizing the Arbitration Rule, the CFPB has answered the industry’s long outstanding question. Would the CFPB be more moderate in its approach in issuing regulation that drastically impacts financial services providers? The industry has its answer. The CFPB has answered in the negative.