Earlier today, 18 trade associations sued the Consumer Financial Protection Bureau to challenge the Bureau’s recent rule banning the use in consumer financial services contracts of arbitration agreements that contain class waivers.

Mayer Brown represents the trade associations in the lawsuit, which was filed in the US District Court for the Northern District of Texas. A copy of the complaint is available here.

The lawsuit challenges the Bureau’s arbitration rule on both constitutional and statutory grounds. The constitutional claim is that the rule is the product of, and is fatally infected by, the unconstitutional structure that Congress gave the CFPB when it created the Bureau in the Dodd-Frank Wall Street Reform and Consumer Protection Act. This constitutional issue is also before the en banc US Court of Appeals for the DC Circuit in the PHH case.

The statutory claims, grounded in the Administrative Procedure Act (“APA”), are: (1) the Bureau failed to satisfy the statutory requirement that it conduct a study of arbitration to serve as a basis for deciding whether to issue a rule because the Bureau improperly limited public participation in the study process, applied defective methodologies that have been widely criticized, misapprehended the relevant data and failed to address key considerations relevant to the analysis required by Dodd-Frank; (2) the rule is arbitrary and capricious and therefore violates the APA because the Bureau failed to address key issues and its conclusions are contrary to the administrative record, which establishes that arbitration is effective in providing relief to consumers and that class-action litigation generally is not; and (3) the rule is unlawful under the Dodd-Frank Act because it is not in the public interest and does not benefit consumers because it effectively forecloses use of individual arbitration, which is the only realistic method by which consumers may obtain relief for the types of individualized claims that they typically regard as most important—and it does so in order to encourage class-action litigation, a procedure that benefits lawyers but almost never produces meaningful relief for individual consumers.