On Monday, July 10th, the Consumer Financial Protection Bureau released its Arbitration Agreements Rule pursuant to the Dodd-Frank Act. The release of this Rule has been much anticipated since the publication of the Proposals last year. True to the Proposals, the Rule does not prohibit mandatory arbitration on a non-class wide basis. However, it does eliminate the imposition of mandatory, class-wide arbitration by those who provide consumer products and services on a repetitive basis (for example, “creditors” as that term is used in the Truth-in-Lending Act, and those participating in credit decisions, acquiring consumer contracts, leasing automobiles, providing debt management services, debt collection and more).
The Rule imposes specific language to include in a pre-dispute arbitration agreement to make crystal clear that the agreement does not prevent a consumer from being part of a class action case in court. It also imposes requirements on those, who are subject to the Rule, to submit detailed records of arbitrations and arbitration related information to the Bureau.
The effective date of the Rule is March, 2018, at the earliest. And, there is still the possibility that Congress will act under its powers to reject the Rule within the next 60 days.
In preparation for an effective final Rule, creditors using pre-dispute arbitration agreements in their consumer finance transaction contracts, should consider the benefits of such agreements absent a class-wide waiver, particularly in light of the “submission of records” requirement.
If a creditor determines that an arbitration agreement, without class-wide arbitration, is still of benefit, then the form of the agreement currently in use will require modification. If a creditor determines that arbitration without the component of mandatory class-wide arbitration is not of value, a “jury trial waiver” provision is a matter to be considered. The rules concerning jury trial waiver differ from jurisdiction to jurisdiction.
While Congress considers whether to reject this rulemaking, finance companies and other creditors should use the next few days and weeks to consider their alternatives.