Pre-Dispute Arbitration Clauses Under CFPB Scrutiny
On April 24, 2012, the Consumer Financial Protection Bureau announced the launch of a public inquiry into how arbitration clauses and arbitration itself affect financial services companies and consumers. CFPB Director Richard Cordray stated that “arbitration clauses are found in many contracts for consumer financial products, [and] we want to learn how arbitration clauses affect consumers and how effective arbitration is in resolving consumers’ issues. This inquiry will help the Bureau assess whether rules are needed to protect consumers.”
The CFPB is asking the public for their comments and for information on:
- Pervasiveness of pre-dispute arbitration clauses;
- Types of claims taken to arbitration by both the consumer and the financial services companies; and
- The effect arbitration clauses and arbitration itself have on consumers and financial services companies.
What Does This Mean For You?
Notably, the Notice and Request for Information promulgated by the CFPB specifically states that the CFPB is not seeking comment on “how, if at all, it should exercise its rulemaking authority under Dodd-Frank….” Similarly, the CFPB stated that “even if consumers understand arbitration clauses, these clauses may still have significant impacts that warrant study by the CFPB” – suggesting a broader inquiry than the typical complaint about arbitration clauses being buried in the fine print. For financial services companies, though, these issues are of great importance. At the forefront is the issue of whether the Bureau will take on the role of regulator or legislator? Will the CFPB seek to limit or prohibit arbitration clauses in consumer contracts, although it would potentially fly in the face of Supreme Court precedent ( AT&T Mobility LLC v. Concepcion)? Or will it take a softer approach by encouraging more open disclosures with consumers? These questions will be important on the road ahead.
Public comments must be submitted on or before June 23, 2012.
Troutman Sanders is an accomplished and experienced leader in providing litigation and regulatory advice to a broad spectrum of financial services institutions. Troutman Sanders’ CFPB Team monitors the development and activities of the CFPB on its CFPB Report Blog and also advises clients on CFPB and Dodd-Frank issues. Additionally, Troutman Sanders’ Financial Services Litigation Group has successfully litigated a wide number of individual and class action litigation, as well as other federal and state consumer protection laws now under the umbrella of the CFPB.
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