|
Consumer finance industry weighs options as CFPB encourages class actions
Companies within the financial industry are considering how to comply with the new rule while ensuring their economic sustainability.
Rules proposed by the Consumer Financial Protection Bureau (CFPB) would boost consumers' ability to bring class actions against financial institutions and consumer financial services providers.
The proposed rules would prohibit the use of mandatory arbitration clauses in contracts for products and services to prevent class actions from proceeding in court. Covering a range of products, from bank accounts and credit cards to auto and student loans, the rules would enable customers to use the court system to bring claims against consumer finance companies.
Companies within the financial industry are considering how to comply with the new rule while ensuring their economic sustainability.
W
hen Congress approved the Dodd-Frank Wall Street Reform and Consumer Act in 2010, it authorized the bureau to issue regulations that would "prohibit or impose conditions or limitations" on the use of arbitration provisions in consumer agreements for consumer financial products and services if doing so is "in the public interest and for the protection of consumers."
Thereafter, the bureau conducted a study, released in March 2015, which purportedly shows that pre-dispute arbitration agreements "effectively prohibit" class litigation.
In recent years, mandatory arbitration provisions have become customary in financial products and services contracts, supported by a series of court rulings affirming the validity of such clauses and creating a strong presumption in favor of private arbitration. Most notably, in a landmark 2011 opinion, AT&T Mobility v. Concepcion, the U.S. Supreme Court upheld the use of class action waivers in arbitration provisions in consumer contracts, and declared state law provisions hostile to such provisions pre-empted by federal law.
Now that the bureau has proposed prohibiting the use of arbitration provisions to prevent class actions, consumer finance companies must grapple with the challenges of compliance. The bureau would impose two rules with respect to pre-suit arbitration agreements: Providers of covered products and services would be prohibited from relying on any arbitration agreement entered into after the effective date of the new rule (211 days after publication of the final rule) to block customer participation in a class action; and for any pre-dispute arbitration agreements entered into after the effective date, companies will be required to provide the bureau with records of all arbitration claims relating to consumer financial products or services filed by or against them, including the arbitration agreement itself, any filings, and the ultimate judgment or award issued by the arbitrator.
Under the new regulation, agreements must contain the following provision: "We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action even if you do not file it." Similar language must be included in contracts for multiple products or services if any are covered by the proposed rule. Read the article at INSIDE COUNSEL
|
