On October 22, Consumer Financial Protection Bureau Director Richard Cordray delivered prepared remarks to the Consumer Advisory Board. At the meeting, Cordray discussed arbitration and issues relating to non-English or limited English–speaking consumers.
The issue of arbitration, however, was at the forefront of the discussion. As we previously reported, the CFPB intends to use its rulemaking authority to address consumer arbitration issues, and presumably to substantially reduce the availability of compelled arbitration. Cordray emphasized this new approach for the CFPB in his prepared remarks, in which he stated, “Companies use [arbitration clauses] … to block class action lawsuits, providing themselves with a free pass from being held accountable by their customers in the courts.”
“Our proposal under consideration would prohibit companies from blocking group lawsuits through the use of arbitration clauses in their contracts. This would apply generally to the consumer financial products and services that the Bureau oversees, including credit cards, checking and deposit accounts, certain auto loans, small-dollar or payday loans, private student loans, and some other products and services as well.”
Pursuant to Section 1028(b) of Dodd-Frank, the CFPB may prohibit, condition, or limit the use of arbitration provisions in consumer financial services agreements if it finds that doing so is “in the public interest and for the protection of consumers.” Given the statements of the CFPB, companies that currently use arbitration agreements are advised to be prepared to take steps to ensure compliance with new regulations anticipated to be forthcoming from the CFPB.
Troutman Sanders LLP has extensive experience in drafting and enforcing arbitration agreements in the financial services industry and will continue to monitor CFPB activity in this regard.