Section 1028 of the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the Consumer Financial Protection Bureau (CFPB) to limit or even prohibit the use of arbitration provisions that govern future disputes between a consumer and a financial services/products provider. This issue is the focus of a CFPB field hearing scheduled for 11 a.m., March 10, 2015. Along with remarks from Agency Director Richard Cordray, the hearing will feature testimony from consumer protection groups, trade associations and the general public. The hearing will stream live from the CFPB’s website.
In conjunction with the field hearing, the CFPB likely will release a long-awaited, detailed report on this topic. Thet report should conclude a three-year study of the issue, which the CFPB performed under Section 1028. The CFPB released preliminary findings of its study in December 2013. As part of that release, the CFPB found that larger banks are more likely to include arbitration provisions in their credit card and checking account contracts. Around 90 percent of those arbitration provisions prohibited class proceedings in court or in arbitration. Though the 2013 preliminary findings focused on individual disputes, the final report will look further at consumer class actions.
It is widely expected that the final report and the field hearing will pave the way for proposed rulemaking from the CFPB. The scope of that potential rulemaking is unclear, though the final report and hearing may shed some light on the direction the CFPB will take. While Section 1028 does grant the CFPB broad authority to limit or prohibit the use of arbitration provisions in consumer finance agreements, there are two limitations: first, it does not permit the CFPB to restrict a voluntary arbitration agreement entered after a dispute has arisen; and second, any regulation limiting or prohibiting the use of arbitration provisions would not be retroactive. Instead, the regulation would be forward-looking, and applicable to agreements entered 180 days after the regulation’s effective date.