On April 25, 2012, the CFPB published a notice and request for comment regarding the structure of its study of arbitration clauses. Section 1028(b) of the Dodd-Frank Act, requires the CFPB to conduct a study concerning the use and effect of arbitration clauses in connection to consumer financial service products. After finalizing the study, the CFPB must report its findings to Congress. Comments must be received by the Bureau by June 23, 2012.
The CFPB has set clear parameters for the information it now seeks. The CFPB has emphasized that it is not looking for suggestions or comments as to how the CFPB should exercise its rulemaking authority; whether pre-dispute arbitration clauses should be limited or prohibited; or, whether regulations are in the public interest. Rather, the CFPB is only interested in obtaining information that would help identify the appropriate methods, scope, and data that should be employed for the arbitration study. To help limit an influx of superfluous comments, the CFPB has identified three topics in which it seeks information: (1) the prevalence of use of arbitration; (2) the use and impact of arbitration in particular arbitral proceedings; and, (3) the impact and use of arbitration outside particular arbitral proceedings. In short, the purpose of the CFPB’s request for comment is to sculpt the arbitration study required under section 1028(b), not to determine whether arbitration clauses in consumer financial services products are proper.
The CFPB is remaining tight-lipped about whether its anticipates the arbitration study will result in new regulations limiting or even prohibiting arbitration completely. However, the general consensus in the legal field is that increased regulations are almost a certainty given the CFPB’s intent to not just accept the status quo, but to delve into areas of possible consumer harm and rectify any potential for consumer abuse. It is unlikely that arbitration clauses will be prohibited entirely, but if the CFPB strictly regulates the use of arbitration in connection with consumer financial service products, the benefits to lenders of such proceedings may dissipate.
Although the Supreme Court in AT&T Mobility LLC v. Concepcion, 131 S.Ct. 1740 (2011), recently upheld the validity of arbitration clauses, this protection may be short-lived. The Dodd-Frank Act grants the CFPB specific authority to prohibit or impose conditions on the use of arbitration clauses and essentially supersedes the Supreme Court holding. Thus, if the CFPB determines that arbitration clauses should be prohibited in connection with consumer financial service products (or severely restricted) after it completes the arbitration study, the CFPB has the authority to impose regulations that do so.