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CFPB to hold May 5 field hearing on arbitration

Posted in Arbitration

The CFPB has announced that it will hold a field hearing in Albuquerque, New Mexico about arbitration on May 5, 2016.  We expect the field hearing to coincide with the release of the CFPB’s proposed rule on the use of arbitration agreements in certain consumer financial services contracts.

In October 2015, the CFPB convened its Small Business Regulatory Enforcement Fairness Act (SBREFA) panel to review the proposals it was considering.  The outline of the CFPB’s proposals given to the SBREFA panel indicated that the CFPB was contemplating a ban on the use of class action waivers, and recent comments by Director Cordray have signaled no change in the CFPB’s position.  As a result, we fully expect the CFPB’s proposed rule to prohibit the use of class action waivers in consumer arbitration agreements.  The CFPB’s report on the input it received from the SBREFA panel will be made public when the proposed rule is released.

In March 2015, the CFPB published its 728-page empirical study of consumer financial services arbitration as mandated by Section 1028 of the Dodd-Frank Act.  As we have commented, rather than demonstrating that arbitration agreements are detrimental to consumers, the study confirmed that arbitration is a faster, less expensive, and far more effective way for consumers to resolve disputes with companies than class action litigation.

The May 5 field hearing will be the fourth field hearing that the CFPB has held about arbitration.  The first hearing was held on December 12, 2013 in Dallas, Texas, the second was held on March 10, 2015 in Newark, New Jersey, and the third was held on October 7, 2015 in Denver, Colorado.  I testified at the second and third field hearings as an industry representative.

Assuming the CFPB issues its proposed rule on May 5, it is likely that any final rule would not take effect before summer 2017.  In the meantime, companies who do not presently use arbitration agreements in their financial services contracts should strongly consider adding them, since agreements entered into before a rule becomes effective are grandfathered under existing law which is favorable to class action waivers.

We will be scheduling a webinar on the proposal to be held soon after it is released.  Information about the webinar will be available on our blog.