DWT recently attended a CFPB field hearing on arbitration agreements relating to consumer financial products or services. The CFPB conducted the hearing in conjunction with the agency’s publication of an outline of proposals under consideration that would restrict a financial institution from using a pre-dispute arbitration agreement in a contract for a consumer financial product or service. The CFPB took these steps in preparation for convening a Small Business Review Panel (Panel) to gather feedback from small industry stakeholders, which is the first step in the agency’s process for proposing a rule on this issue.
At the field hearing, Director Cordray offered opening remarks stating that consumers “should not be asked to sign away their legal rights when they open a bank account or credit card,” and that companies “are using the arbitration clause as a free pass to sidestep the courts and avoid accountability for wrongdoing.” He asserted that the proposals under consideration at this stage would provide consumers a day in court, permitting them to hold covered entities accountable; would induce covered entities to comply with the law in order to avoid lawsuits; and would make the individual arbitration process more transparent by requiring a covered entity that uses an arbitration clause to submit to the CFPB the claims filed and awards issued under that arbitration process; the CFPB, in turn, could publish on its website the information collected from each of those covered entities. CFPB staff then moderated a discussion among a panel of participants, including: one academic for and one against arbitration; two consumer advocates; one credit union officer who supports arbitration as a “last resort;” and one attorney who represents financial institutions who strongly supports arbitration. Public testimony followed, with all participants supporting restrictions on arbitration.
Turning to the outline of proposals, we’ll provide detailed commentary shortly. Meantime, a few initial impressions follow:
- While the CFPB’s initiative is novel for traditional banking products or services, the CFPB’s proposal for the Panel regarding pre-dispute arbitration agreements appears to be aiming for a limited proposed rule that generally would track a restriction that applies to securities brokers and dealers; and
- While the CFPB, at this stage, is taking the position that requiring the submission of information about arbitration activity would “impose minimal costs on covered entities,” the establishment of yet another system for tracking information—both internal and customer-facing information—could be complicated.
We hope this summary is helpful and look forward to your comments.