Last Tuesday, the Consumer Financial Protection Bureau (the “CFPB” or “Bureau”) proposed new rules that would regulate the consumer arbitration agreements of certain financial product and service providers.

Are your arbitration agreements compliant?

Why Is the CFPB Imposing New Rules?

In 2010, Congress enacted the Dodd-Frank Act, which instructed the CFPB to study the consumer arbitration agreements of: (a) individuals and businesses that offer or provide a consumer financial product or service; and (b) affiliate service providers of such persons (each a “covered person”). Dodd-Frank further authorized the Bureau to impose rules for covered persons that regulate such agreements.

In 2015, the CFPB released a 728-page study on the use of such agreements by covered persons. Based on that study’s findings, the Bureau proposed new rules (12 CFR part 1040) that would restrict covered persons’ use of consumer arbitration agreements.

What Would the New Rules Require?

The CFPB’s proposed rulemaking would impose new regulations in two areas:

Class Action Waivers – The new Bureau rules would prohibit covered persons from using consumer arbitration agreements that include class action waiver provisions. This rule would also require covered persons to include language in their arbitration agreements reflecting the class action limitation.

Reporting Requirements –The proposed CFPB rules would require covered persons using consumer arbitration agreements to submit certain records of arbitration proceedings to the Bureau, which the CFPB would then publish openly on its website.

When Will the New Rules Take Effect?

If implemented, the proposed CFPB rulemaking would apply only to agreements that are entered into 180 days following the regulation’s effective date. The Bureau has proposed an effective date of 30 days after a final rule is published in the Federal Register.

Is My Arbitration Agreement Compliant?

Class action litigation can be daunting to defend. Increasingly, businesses are including mandatory arbitration and class action waiver provisions in their customer agreements, which are effective in reducing both the costs associated with litigation and the potential recovery of prospective plaintiffs.

However, as the CFPB’s proposed rulemaking indicates, regulators – and arbitrators themselves – are cracking down on consumer arbitration agreements. As such, consumer financial service providers and their affiliates should speak with experienced counsel to ensure that their agreements are enforceable and comply with applicable laws, rules and regulations.