CFPB unveils proposal to ban class-action waivers

March 8, 2016

5273The Consumer Financial Protection Bureau is considering rules that would effectively overrule the Supreme Court’s decisions in Concepcion and Italian Colors, and prohibit consumer financial services companies from using class-action waivers in their arbitration agreements.

At a field hearing attended by industry stakeholders at which Alan Kaplinsky of Ballard Spahr LLP testified on behalf of the industry, the bureau provided an outline of its proposed arbitration rules. It then convened a Small Business Review Panel to gather feedback from small industry stakeholders that might be impacted by the proposed rules if they become final.

In an expert analysis commentary published inpublished in Consumer Financial Services Law Report, Kaplinsky and co-author Mark Levin of Ballard Spahr said the CFPB’s proposed rules exposed at the hearing generally would prohibit companies from including arbitration clauses that block class action lawsuits in their consumer contracts for everything from credit cards to certain auto loans, among many others.

They would not ban consumer arbitration clauses in their entirety.

However, for companies still willing to offer arbitration for individual (non-class) cases, the clauses would have to state explicitly that they do not apply to cases filed as class actions unless and until class certification is denied by the court or the class claims are dismissed in court. The CFPB may provide companies with specific “safe harbor” language to that effect that could be included in the companies’ arbitration agreements.

The authors conclude that “enhancing consumer education about arbitration would be far more beneficial to consumers than depriving them of arbitration as a means of resolving disputes.”

Meanwhile, companies that do not use arbitration agreements in their financial services contracts should strongly consider doing so, since agreements entered into before a rule becomes effective are grandfathered under existing law (i.e., Concepcion and Italian Colors) which is favorable to class-action waivers.

Alan Kaplinsky is chair of Ballard Spahr’s consumer financial services group. Mark Levin, a member of the group, specializes in complex litigation.