The federal Consumer Financial Protection Bureau (CFPB) issued what is being labeled a “brazen” rule[1] on Monday, July 10, 2017, prohibiting financial firms from using class action waivers to manage consumer complaints and disputes.[2] As we have reported in previous client alerts and blog posts[3], the Supreme Court of the United States has previously upheld consumer arbitration clauses and class action waivers, resulting in a significant increase in the adoption of such clauses by consumer-facing companies in consumer contracts, warranties, and terms and conditions. At a seemingly equal pace, however, consumer advocacy groups and many law makers have criticized these clauses as favoring companies over consumers unfairly.[4]

In the last decade leading up to today’s rule, a series of SCOTUS opinions, including, AT&T Mobility v. Concepcion, 131 S. Ct. 1740 (2011), American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013) and DirecTV, Inc. v. Imburgia, 136 S.Ct. 463 (2016), afforded consumer-facing companies the ability to manage consumer complaints and disputes by utilizing arbitration over litigation in the courts. These opinions upheld consumer arbitration clauses as well as terms requiring the consumer to expressly waive his or her ability to bring class actions. Thus, many consumer-facing companies mitigated the risks (i.e., increased costs, complexity and time) associated with consumer class actions by mandating individual arbitration as the consumer’s only avenue for dispute resolution.

Consumer advocacy groups, as well as some in the judiciary[5], criticized these decisions culminating in the CFPB’s rule today that is predicted to halt the use of consumer arbitration clauses and class action waivers for banks and credit card companies, among others. The rule prohibits covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action concerning the covered consumer financial product or service. It also requires covered providers involved in such arbitrations to submit specified arbitral records and results to the CFPB. The rule will take effect in 60 days (September 2017) and will apply to contracts that begin 180 days later (March 2018). The rule is expected to face multiple challenges and spark further controversy in Washington, D.C., and we will therefore update this alert with new developments and insight as they occur.