CFPB Approves Rule Restricting Use of Mandatory Arbitration

Chris Gaetano
Published Date:
Jul 11, 2017

The Consumer Financial Protection Bureau (CFPB) just issued a new rule that restricts the ability of banks and other financial institutions to mandate the use of private arbitration in the event of a dispute, opening up more pathways for litigation instead. The new rules were developed as part of the Dodd-Frank Act, which mandated that the bureau study the use of mandatory arbitration clauses and make changes if it was found that new rules would be in the public interest. 

Under the new rules, covered entities would be blocked from using pre-dispute arbitration agreements to block consumer class actions in court, and would be required to insert language into their arbitration agreements to reflect this limitations. Second, providers that use pre-dispute arbitration agreements must submit certain records relating to arbitral and court proceedings to the CFPB, which would use the information it collects to continue monitoring the proceedings and determine whether there are developments that raise consumer protection concerns that may warrant further action. Finally, the Bureau will publish the materials it collects on its website (with appropriate redactions as warranted). 

The new rules apply to financial institutions involved in: 

* extending consumer credit, participating in consumer credit decisions, or referring or selecting creditors for non-incidental consumer credit, each when done by a creditor under Regulation B implementing the Equal Credit Opportunity Act (ECOA), acquiring or selling consumer credit, and servicing an extension of consumer credit;

* extending or brokering automobile leases as defined in Bureau regulation;

* providing services to assist with debt management or debt settlement, to modify the terms of any extension of consumer credit, or to avoid foreclosure, and providing products or services represented to remove derogatory information from, or to improve, a person’s credit history, credit record, or credit rating;

* providing directly to a consumer a consumer report as defined in the Fair Credit Reporting Act (FCRA), a credit score, or other information specific to a consumer derived from a consumer file, except for certain exempted adverse action notices (such as those provided by employers);

* providing accounts under the Truth in Savings Act (TISA) and accounts and remittance transfers subject to the Electronic Fund Transfer Act (EFTA);

* transmitting or exchanging funds (except when necessary to another product or service not covered by this rule offered or provided by the person transmitting or exchanging funds), certain other payment processing services, and check cashing, check collection, or check guaranty services consistent with the Dodd-Frank Act; and

* collecting debt arising from any of the above products or services by a provider of any of the above products or services, their affiliates, an acquirer or purchaser of consumer credit, or a person acting on behalf of any of these persons, or by a debt collector as defined by the Fair Debt Collection Practices Act (FDCPA).

The regulation is effective 60 days from its inclusion in the federal register. 

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