March 25, 2015
Earlier this month, the Consumer Financial Protection Bureau (CFPB), released its Arbitration Study Report to Congress. The report suggests that pre-dispute arbitration clauses and class action waivers in consumer financial agreements are unfair to consumers. The position in this report is contrary to the direction taken by Supreme Court in American Express Co. v. Italian Colors Restaurant, where the Court permitted the use of arbitration clauses incorporating class action waivers (see previous alert here). The report came about as a result of Section 1028(a) of the Dodd-Frank Act, which instructed the CFPB to study the use of pre-dispute arbitration agreements in the consumer financial industry. Most notably, the report found little support for the idea that pre-dispute arbitration clauses result in consumer cost savings. The report is yet another attempt to discredit the once-dominant idea that arbitration is preferable over litigation for business disputes.

The report’s data appears to give the CFPB the traction it needs to impose new regulations on the use of mandatory pre-dispute arbitration agreements in consumer financial contracts. While any restrictions on the use of arbitration agreements and/or class action waivers will take years to implement, given the CFPB’s broad regulatory mandate, this report is a clear signal that it intends to begin exercising that mandate in the area of pre-dispute arbitration agreements. Thus, companies must have a strategy in place concerning arbitration provisions and jurisdiction/venue clauses in their consumer finance agreements.

To view the full alert, click here.