WASHINGTON (Legal Newsline) - A recent speech given by Richard Cordray, the director of the Consumer Financial Protection Bureau, reinforced speculation that the CFPB will soon release new rules restricting the use of arbitration provisions in consumer agreements.
The speech, given to the American Constitution Society on Feb. 18, summarized the CFPB’s earlier statements on the topic.
"Arbitration clauses, as they are used today both in the field of consumer finance and more generally, often have been deliberately designed to block Americans from effective means of vindicating their rights," Cordray said.
"Some of the broader ramifications are surprising and even breathtaking in their scope."
According to Zane Gilmer, an attorney at Stinson Leonard Street in Denver, it won't be long before Cordray and the CFPB issue the new rules.
“I don’t know how soon it will be, but I fully expect it to be this year. They’ve made every indication that this was going to be a priority for 2016,” Gilmer told Legal Newsline.
The new guidelines will most likely be based on the findings in "Arbitration Study: Report to Congress 2015," which the CFPB released after receiving a mandate under the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The study evaluated the impact of arbitration provisions on consumers of financial products and services. It says arbitration clauses restrict consumers' relief in disputes with financial service providers, often prohibiting consumers from bringing class actions, and more than 75 percent of consumers in the credit card market did not know if they had agreed to arbitration.
“Shortly after they released the study they started looking at potential rules that might flow from the outcome of that study,” Gilmer said.
The CFPB’s review panel is considering multiple proposals and alternatives. These include prohibiting the application of pre-dispute arbitration agreements to class action litigation in court and imposing conditions on the use of pre-dispute arbitration agreements.
Though the details of the regulations have yet to be decided, what is clear is that the CFPB will impose limits on class action waivers that prevent the opportunity to bring class action lawsuits.
“I personally don’t think that it’s needed,” Gilmer said. “I think that banning class actions in arbitration will not accomplish the goal that the CFPB is looking to accomplish, which is to provide greater access to legal forums for consumers.”
He said that the CFPB does not have the authority to ban all class actions. Their authority is limited to the arbitration forum.
“Which means that businesses that currently have class action waivers might decide to convert those provisions [on arbitration] into class action waivers,” Gilmer said. “There’s another way for these businesses potentially to reach the same outcome."
The debate over whether changes are needed is based partly on doubts over the accuracy of the study. Many have criticized it as having relied on insufficient data and cherrypicking information to reach predetermined conclusions.
Law professors Jason Scott Johnston from the University of Virginia School of Law and Todd Zywicki of George Mason University School of Law issued a critique.
“It contains no data on the typical arbitration outcome—a settlement—and it is these arbitral settlements, and not arbitral awards, that should be compared to class action settlements,” the critique stated.