The Consumer Financial Protection Bureau (CFPB or Bureau)’s Arbitration Agreements Rule (“the Rule”) took effect on September 18, 2017. The Rule, which bans class action waivers in arbitration agreements in contracts for consumer financial products applies, to pre-dispute arbitration agreements entered into on or after March 19, 2018. On September 15, 2017, just prior to the rule taking effect, the CFPB issued a Small Entity Compliance Guide to assist companies to comply with the Rule. The guide includes a summary of the Rule and information to assist in implementation, including examples to illustrate components of the Rule and records required to be submitted to the CFPB. It also outlines who is and is not covered by the Rule, including those categories of entities exempted from coverage.
What You Need to Know Now
The Rule governs agreements that provide for arbitration of future disputes between consumers and providers of specified covered consumer financial products and services. It does three things:
- prohibits “providers” (as defined in the Rule) from relying on pre-dispute arbitration agreements to block class actions concerning consumer financial products and services covered by the Rule;
- requires providers to include specific language in pre-dispute arbitration agreements they enter into concerning covered consumer financial products and services stating that the agreement may not be used to block class actions and/or provide required notifications to consumers that are parties to these agreements; and
- requires providers who use pre-dispute arbitration agreements to submit to the Bureau certain arbitration-related records. The Bureau will publish these records on its website in redacted form.
The Rule applies broadly to providers of most consumer financial products and services, meaning that they are offered or provided for use by consumers primarily for personal, family or household purposes. For a more detailed description of the scope and coverage of the Rule, please click here. If a covered provider offers or provides a broad range of products or services, only some of which are covered by the Rule, then the covered provider will need to comply with the Rule’s requirements only with respect to those products or services covered by the Rule.
Legislative Showdown Looms
Republicans are trying to repeal the Rule under the Congressional Review Act (CRA). The House voted 231-190 on July 25 to pass a measure repealing the Rule. Under the CRA, the Senate can repeal the Rule with a simple majority. But the Senate has to act within 60 legislative days of the Rule’s July 19 publication. No vote is yet scheduled in the Senate. In addition, there are indications that recent data breaches might impact congressional appetite to attempt to repeal the Rule.