Today the Senate struck down a new Consumer Financial Protection Bureau (“CFPB”) rule which would have prohibited providers of financial products and services from including class action waivers in their arbitration agreements with consumers. The action is a win for the financial services industry.

Background

Way back in March 2015 we blogged about the CFPB’s study of pre-dispute arbitration contracts in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The CFPB’s study culminated in a Report to Congress which found that arbitration clauses were ubiquitous in consumer financial products and services agreements, that consumers were not aware and did not understand them and that such clauses were generally detrimental to consumers. Specifically, the CFPB found that the availability of class actions served to deter companies from engaging in potentially illegal activities, consumers tended to get more relief more often in class actions rather than in individual arbitration proceedings, and there was no evidence that arbitration and class action waiver provisions lowered costs for consumers.

In May 2016, the CFPB proposed a rule that would (1) “prohibit 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;” and (2) require such providers to submit arbitral records to the CFPB. See Arbitration Agreements, 81 Fed. Reg. 100, 32830 (May 24, 2016) (to be codified at 12 C.F.R pt. 1040). The proposed rule would have covered financial products or services offered or provided for use by consumers primarily for personal, family or household purposes, or they are delivered, offered, or provided in connection with such products or services, such as debt collection. 81 Fed. Reg. 100, 32927.

Congressional Action

In July 2017, the House of Representatives voted 231-190 on a resolution to prevent the CFPB rule from taking effect. On October 24, 2017, the resolution came before the Senate for a vote and passed 51-50. Vice President Pence cast the tie breaking vote. The resolution now goes to President Trump for signature and, based on comments by the White House, he is expected to sign.

Implications

The death of the CFPB’s rule returns providers of financial services and products to the status quo. Providers are free to continue to include and enforce arbitration agreements and class action waivers in agreements with consumers.