The Consumer Financial Protection Bureau (CFPB) issued its final rule Monday, July 10, banning pre-dispute mandatory arbitration clauses with class action waivers in consumer financial product and services agreements. The rule also requires financial institutions participating in arbitrations to submit those records to the CFPB for review and potential publication. The rule is effective 60 days after publication in the Federal Register, and will apply to pre-dispute mandatory arbitration agreements entered into on or after 180 days from the effective date.

The final rule follows the CFPB’s May 2016 proposed rule prohibiting pre-dispute mandatory arbitration clauses in consumer financial services and products for such items as checking or savings accounts, credit cards, student loans, payday loans, automobile leases, debt management services, some payment processing services, other types of consumer loans, prepaid cards, and consumer debt collections. Also barred are class action waivers in pre-dispute arbitration agreements concerning consumer credit reports. Agreements entered into with consumers will have to state that: “We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action even if you do not file it.”

The proposed and final rules follow the CFPB’s 2015 study, which concluded that class action litigation provides more favorable results to consumers in financial services and product disputes than arbitration. The CFPB’s 700-page study (which included its preliminary 2013 study) and report to Congress was authorized under Section 1028(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). Section 1028(b) of the Dodd-Frank Act authorized the CFPB to promulgate regulations “prohibiting or limiting” the use of pre-dispute arbitration clauses to the extent consistent with the CFPB’s research, findings, the public interest, and the interests of consumers. The study found, among other things, that consumers benefit more from class action settlements rather than arbitration. The study was roundly criticized by industry experts and legal professionals as relying on incomplete and data skewed in favor of consumers. The CFPB received nearly 13,000 comments on the proposed rule, both favoring and objecting to it.

As of Tuesday, members of Congress, including Sen. Tom Cotton (R-Ark) and House Financial Services Committee Chair Jeb Hensarling (R-Texas), both indicated that they would lead efforts to invoke the process of rescinding the rule under the Congressional Review Act, which requires expedited consideration and approval within 60 days of receipt of the rule by Congress.

For several years, industry practice has preferred the resolution of consumer financial disputes through arbitration agreements for credit cards, bank accounts, payday loans, certain auto loans, and private student loans. The U.S. Supreme Court, in AT&T Mobility v. Concepcion, 563 U.S. 321 (2011), and its progeny, has consistently supported arbitration as the favored remedy for the resolution of consumer financial disputes as more cost-effective, efficient, and consumer friendly, when compared to litigation.