CFPB Proposes Registry for Arbitration Clause and Class Action  Waiver Use
Posted on Categories Arbitration Agreements, CFPB, Class Action/Collective Waivers, Consumer, RegulationTags , , , ,

By George H. Friedman, SAA Publisher & Editor-in-Chief

The Consumer Financial Protection Bureau (“CFPB” or “Bureau”) has proposed a new rule seeking information from nonbanks on among other things arbitration and class action waivers.

Just a little while ago we reported in SAA 2023-01 (Jan. 5) that the CFPB seemed disinclined to act on arbitration. We based this surmise on the Agency’s Semi-Annual Report to Congress for the period running October 1, 2021 through March 31, 2022. Like its predecessors, the Report made scant reference to arbitration, referring to it just twice in connection with litigation brought by the Bureau. Also, the Spring 2022 Agency Rule List, which delineates regulatory initiatives the Bureau: “reasonably anticipates having under consideration during the period from June 1, 2022 to May 31, 2023,” had five items listed, but arbitration was not one of them. The newly-released Fall 2022 Agency Rule List, covering the period from December 2022 through November 2023, is like its predecessors silent about arbitration.

A Telltale Sign …

One item, however, caused observers to conclude that mandatory arbitration was back on the CFPB’s radar. Listed in the proposed rule stage is “Nonbank Registration – Terms and Conditions.” The Bureau describes the item as follows:

“a proposed rule that would require supervised nonbank entities to register with the Bureau and provide information about their use of certain terms and conditions in standard-form contracts. In particular, the Bureau is developing a proposal to collect information standard terms used in contracts that are not subject to negotiating or that are not prominently advertised in marketing.”

The January 5 Ballard Spahr Consumer Finance Monitor Blog said: “The proposed rule would be focused on collecting information on non-negotiable standard terms or terms that are not prominently advertised in marketing. Based on media reports about remarks given by Director Chopra at a September 2022 event, it appears that ‘forced’ arbitration provisions are among the types of non-negotiated consumer contract terms that the CFPB has in mind.”

… Was Spot On …

The Bureau on January 12 announced via press release that it had filed a rule proposal:

“to establish a public registry of supervised nonbanks’ terms and conditions in ‘take it or leave it’ form contracts that claim to waive or limit consumer rights and protections, like bankruptcy rights, liability amounts, or complaint rights…. Under the proposed rule, nonbanks subject to the CFPB’s supervisory jurisdiction would need to submit information on terms and conditions in form contracts they use that seek to waive or limit individuals’ rights and other legal protections. That information would be posted in a registry that will be open to the public, including to other consumer financial protection enforcers.”

… And Covers Mandatory Arbitration Agreements and Class Action Waivers

Any ambiguity about whether the proposed rule covered mandatory predispute arbitration agreements and class action waivers was resolved in the affirmative. Says the release:

“Under the proposal, the CFPB would seek information on contract terms and conditions seeking to waive any constitutional, statutory, or common law legal protection, right, or defense; restrict the ability of consumers to complain; limit the time or place for consumers to bring legal actions; limit liability amounts; waive class action rights; and impose arbitration provisions. Both company information and information about the use of the terms and conditions would be published”(emphasis added).

(ed: The public comment period: “will remain open for 60 days following publication of the proposed rule on the CFPB's website or 30 days following publication of the proposed rule in the Federal Register, whichever period is longer.”)