CFPB Issues Rule to Ban Arbitration Clauses

August 2017

On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) issued a final regulation banning class action waivers contained in arbitration agreements accompanying the sale of consumer financial products and services, including motor vehicle retail installment sales and leases.

Under the rule, companies can still include arbitration clauses in their contracts. But companies subject to the rule may not use arbitration clauses to stop consumers from being part of a group action. Although dealers are exempt from CFPB jurisdiction under Dodd-Frank, the new arbitration rule would still affect dealers due to its impact on other businesses dealers work with, such as finance companies. The rule includes specific language that companies will need to use if they include an arbitration clause in a new contract.

The CFPB argues that the rule makes the individual arbitration process more transparent by requiring companies to submit to the CFPB certain records, including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration. The CFPB will also collect information from arbitration administrators regarding a company’s non-payment of arbitration fees and its failure to follow the arbitrator’s fairness standards.

The CFPB believes gathering these materials will enable them to better understand and monitor arbitration, including whether the process itself is fair. The materials must be submitted with appropriate redactions of personal information. The CFPB intends to publish these redacted materials on its website beginning in July 2019.

In May 2016, the Bureau issued a proposed rule that included a request for public comment. The Bureau received more than 110,000 comments. PAA, together with a group of more than 30 state and metro dealer associations filed formal comments in which the associations explained the benefits of arbitration for consumers and dealers, the impact of the ban on the availability of affordable credit, and that the CFPB does not have the legal authority to impose the ban on loans or leases for motor vehicles purchased or leased from franchised motor vehicle dealers.

The day after the CFPB published its rule, Rep. Keith Rothfus (R-PA) introduced a joint resolution of disapproval under the Congressional Review Act to block the new rule. It passed in the House of Representatives by 231-190, and now heads to the Senate. If the resolution passes both houses of Congress by a simple majority and the President signs it, that will have the effect of repealing the rule.

The final rule applies to providers of certain consumer financial products and services in the core consumer financial markets of lending money, storing money, and moving or exchanging money, including, subject to certain exclusions specified in the rule.

This regulation is effective September 18, 2017. It applies to agreements entered into on or after March 19, 2018. More information is available online at .

Courtesy of PAA Bulletin No 15 • August 15, 2017