On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) announced a new rule that may have significant ramifications for the financial industry. The rule aims to stop a now common feature in financial services contracts: provisions directing customers to private, individual arbitration rather than the courts to settle disputes.
The sweeping rule would ban many financial service companies from using mandatory arbitration clauses in contracts with consumers. The rule does not prohibit such clauses outright, but instead will prevent companies from relying on any arbitration agreement to block a consumer from joining or initiating a class action. The result would be to open the door to class action lawsuits against the vast majority of businesses that extend credit to consumers, including banks, mortgage lenders and servicers, and credit card companies.
In addition, companies will face reporting requirements under the rule for any arbitrations that still happen, either under agreements entered into before the rule becomes effective or for non-class disputes. Parties may then lose the benefit of confidentiality that arbitration can provide. Under the rule, the CFPB would begin posting arbitration data to its public website, starting in July 2019. Continue Reading