Photo of Matthew McDade

On October 7, 2015, the Consumer Financial Protection Bureau (“CFPB”) proposed a rule that would severely limit the use of arbitration clauses in many consumer financial agreements and likely increase class action litigation in the consumer financial arena. The proposed arbitration ban applies to various consumer accounts, including credit cards, checking accounts, auto title loans, pay day loans, private student loans and installment loans, among others. The proposal requires that any arbitration clauses in these agreements contain a carve-out for class action cases. Stated differently, arbitration clauses in these agreements could not prevent consumers from participating in class action litigation against their lender.

Additionally, as part of the proposal introduced by the CFPB, companies that choose to arbitrate individual claims must submit to the CFPB a list of all arbitration claims filed and awards issued. The CFPB is also considering publishing that information to the public through its website.

The study that led to this proposal was published in March of this year. That study was mandated by the Dodd-Frank Act. Before this proposal can be implemented, it must be examined by a small business review panel. However, if approved, the proposal would take effect 30 days after publication and would govern to all agreements entered into 180 days after the effective date.