The Consumer Financial Protection Bureau (the "CFPB") is a new federal agency responsible for regulating consumer financial products and services. On December 12, 2013, the CFPB released a report on the use of arbitration clauses with class action waivers contained in credit card, prepaid card, and checking account contracts. The Report is part of a broader study on mandatory arbitration clauses required by the Dodd-Frank Act. The CFPB examined the prevalence of the clause in different markets, the length and complexity of the clause, the frequency and type of arbitration filings, and the incidence of class action waivers in arbitration clauses.
The Report is part of a broader study on the use of arbitration clauses in consumer financial contracts. According to the Report, about 90 percent of arbitration clauses barred consumers from filing class actions. Larger financial institutions are more likely to include arbitration clauses with class action waivers than smaller organizations. Based on dubious evidence, the Report finds that consumers would rather bring a class action than pursue individual arbitration. The CFPB bases this conclusion on its study of six court cases in which more than 13 million class members made claims or received payments, while only a handful of individuals opted out and arbitrated. Failing to opt out of a class, however, is not proof that consumers prefer class actions. Rather, most consumers will not bother to take the action necessary to opt-out of a class. Indeed, many do not even read the class action notices they receive.
The CFPB appears to be responding to recent rulings by the U.S. Supreme Court enforcing arbitration provisions with class action waivers, beginning with the landmark case of AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011). Under Concepcion, the Federal Arbitration Act ("FAA") preempts state law that commonly refused to enforce arbitration clauses, especially those with class action waivers. Some believe the CFPB can make an end-run around Concepcion and its progeny by using its legislatively-granted regulatory power to prohibit or restrict lender practices if "in the public interest and for the protection of consumers." Corporations and their counsel, however, will argue that the FAA and Supreme Court law trump any authority of the CFPB to impose such restrictions.
The CFPB next plans "to evaluate whether class actions exert improper pressure on defendants to settle meritless claims." The CFPB will also analyze consumer awareness of arbitration clauses and consumer benefits to class actions. After completing its study, the CFPB will submit its findings to Congress. Given the current deadlock in Congress and recent failed legislative attempts to regulate arbitration clauses, it is unlikely Congress will take action in the near future. It is more likely that the CFPB will attempt to administratively restrict the use of arbitration provisions in consumer contracts. Its recent Report indicates the direction in which the CFPB is heading.
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