United States: CFPB Targets Mandatory Arbitration Clauses To Protect Consumer Class Actions

Last Updated: May 17 2016
Article by Scott A. Cammarn, Peter Carey and Joseph V. Moreno

Most Read Contributor in United States, August 2018

On May 5, 2016, the Consumer Financial Protection Bureau ("CFPB") issued a proposed rule to prohibit providers of certain consumer financial products and services from using arbitration clauses to block consumers from filing or participating in class action lawsuits.1 In addition, the proposed rule would impose a reporting obligation on providers of covered consumer financial products or services, requiring that certain materials filed in arbitration cases be submitted to the CFPB.2 The stated purpose of the proposed rule, according to Director Richard Cordray, is to prevent "banks and financial companies [from avoiding] accountability by putting arbitration clauses in their contracts that block groups of their customers from suing them."3

Arbitration Clauses – A CFPB Priority

Arbitration provisions have become common in consumer contracts as a series of court rulings upheld businesses' use of pre-dispute arbitration clauses to limit the ability of consumers to file class action lawsuits.4 Limiting the use of these pre-dispute arbitration provisions that the CFPB has characterized as "effectively den[ying] groups of consumers the right to seek justice and relief for wrongdoing" has been a priority of the CFPB since its inception.5

The Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") directed the CFPB to study the use of pre-dispute arbitration agreements by providers of certain consumer financial products and services.6 The CFPB released preliminary results of its study in late 2013, and, in March 2015, the CFPB published and delivered to Congress its completed 728-page report.7 In its May 5, 2016, press release announcing the proposed rule, the CFPB highlighted the 2015 study's finding that class actions bring "hundreds of millions of dollars in relief to millions of consumers each year and cause companies to alter their legally questionable conduct" and noted that mandatory pre-dispute arbitration clauses can block class actions.8

In addition to studying the issue, Dodd-Frank also authorized the CFPB to issue regulations restricting or prohibiting the use of pre-dispute arbitration agreements if the CFPB found that such rules would be in the public interest and for the protection of consumers.9

The Proposed Rule

The CFPB's proposal stops short of banning pre-dispute arbitration clauses altogether. Under the proposed rule, companies still would be able to use pre-dispute arbitration clauses to require consumers to resolve individual disputes through arbitration. However, such clauses could not be used to prevent consumers from filing or participating in a class action lawsuit.

To accomplish this, each agreement would be required to contain the following provision: "We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action even if you do not file it."10

The proposed rule would apply to contracts between consumers and providers of certain consumer financial products or services. The proposed rule contains a broad definition of "covered consumer financial products and services" that includes credit cards, checking and deposit accounts, prepaid cards, money-transfer services, certain auto and auto title loans, payday and installment loans, student loans, and other types of consumer credit products and services.11

In addition to requiring the pre-dispute arbitration clauses to include a carve-out for class actions, the proposed rule also would require providers of covered consumer financial products and services to submit to the CFPB certain records related to arbitration cases to "allow the [CFPB] to monitor consumer finance arbitrations to ensure that the arbitration process is fair for consumers."12 Providers would be required to submit the initial claim and any counterclaim, the arbitration agreement, any judgment or award, and other documents related any arbitration cases concerning covered consumer financial products or services.13 The CFPB is considering whether this information would be made publicly available.14

Pre-dispute arbitration agreements are unlikely to be affected by any final rule until sometime in 2017. After the proposed rule is published in the Federal Register, the public will have 90 days to submit comments. The CFPB is proposing an effective date of 30 days after a final rule is published in the Federal Register, and "[c]onsistent with the Dodd-Frank Act, the proposed rule would apply only to agreements entered into after the end of the 180-day period beginning on the regulation's effective date."15

Implications for Arbitrations

Taken together, the two prongs of the CFPB's proposed rule appear to be an effort to chill arbitrations. The requirement that pre-dispute arbitration clauses preserve a consumer's ability to file or participate in a class action lawsuit will fundamentally change a company's risk analysis when deciding whether to include any arbitration provision in consumer contracts. If pre-dispute arbitration clauses can commit only individual disputes to arbitration, but still leave companies facing the potential expense of defending against class action lawsuits, businesses ultimately may decide to do away with arbitration for an even broader class of consumer disputes than those directly affected by the proposed rule.

The requirement that certain records relating to arbitral proceedings be submitted to the CFPB could similarly have a chilling effect on arbitrations generally, including arbitrations of individual consumer disputes. The CFPB has indicated that it "intends to publish these materials on its website in some form, with appropriate redactions or aggregation as warranted, to provide greater transparency into the arbitration of consumer disputes."16 The ability to resolve disputes through arbitration in a less public forum than a courtroom is another factor that companies consider when deciding to commit consumer disputes to arbitration. The CFPB's proposal to collect and potentially publish records of arbitration proceedings appears to be an effort to chill arbitrations – which is inconsistent with the general federal policy of enforcing arbitration agreements codified in the Federal Arbitration Act.17


The CFPB has long signaled its desire to reign in perceived abuses of arbitration clauses, and the proposed rule represents a significant step toward that goal. While the precise language of any final rule could change, the proposed rule makes clear that the CFPB's strategy to police perceived abuses of pre-dispute arbitration agreements is focused on protecting consumers' ability to file and participate in class action lawsuits. Without a way to avoid the prospect of defending against class action lawsuits, companies will be forced to make a different cost-benefit calculation when deciding whether to offer arbitration to individual consumers or seek resolution of all consumer disputes – both individual and class actions – in the courts.


1 See CFPB, Notice of Proposed Rulemaking, Arbitration Agreements 361 (May 5, 2016), http://files.consumerfinance.gov/f/documents/CFPB_Arbitration_Agreements_Notice_of_Proposed_Rulemaking.pdf [hereinafter Proposed Rule].

2 Id. at 362-63.

3 Press Release, CFPB, CFPB Proposes Prohibiting Mandatory Arbitration Clauses that Deny Groups of Consumers their Day in Court (May 5, 2016), http://www.consumerfinance.gov/about-us/newsroom/consumer-financial-protection-bureau-proposes-prohibiting-mandatory-arbitration-clauses-deny-groups-consumers-their-day-court/ [hereinafter CFPB Press Release].

4 See, e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011) (holding that the Federal Arbitration Act preempts state laws that prohibit the enforcement of class action waivers in consumer arbitration agreements).

5 CFPB Press Release, supra note 1; see Yuka Hayashi & Christina Rexrode, Proposed Rule Would Allow Consumers to Sue Banks, Credit-Card Companies, The Wall Street Journal, May 5, 2016, http://www.wsj.com/articles/cfpb-unveils-proposed-rule-to-let-consumers-sue-banks-credit-card-companies-1462420862 [hereinafter Hayashi & Rexrode].

6 See 12 U.S.C. § 5518(a).

7 See CFPB, Arbitration Study: Report to Congress, pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a) (2015), http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf.

8 CFPB Press Release, supra note 1.

9 See 12 U.S.C. § 5518(b).

10 Proposed Rule, supra note 2, at 361.

11 See id. at 357-60; Hayashi & Rexrode, supra note 5.

12 CFPB Press Release, supra note 1; see Proposed Rule, supra note 2, at 362-63.

13 See Proposed Rule, supra note 2, at 362-63.

14 See CFPB Press Release, supra note 1.

15 See Proposed Rule, supra note 2, at 5.

16 Id. at 4.

17 See 9 U.S.C. §§ 1-14.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions