In a recent letter, 58 members of Congress asked the Consumer Financial Protection Bureau (CFPB) to exercise its rule-making authority and ban mandatory arbitration provisions in consumer financial agreements. In support of their request, the authors cite the CFPB’s March 2015 internal study on arbitration, which the CFPB conducted pursuant to Section 1028 of the Dodd-Frank Act. The CFPB claimed that arbitration limits consumer relief, from a strict dollar perspective, in disputes with financial institutions. Critics, meanwhile, have charged the CFPB with a lack of impartiality and a predisposed bias against arbitration provisions.
Under Section 1028, the CFPB may promulgate rules to restrict or wholly prohibit the use of mandatory arbitration provisions in consumer financial agreements. There are just two limitations on the CFPB’s authority here. First, the CFPB may not restrict a voluntary arbitration agreement entered after a dispute has arisen. Second, any rule limiting or prohibiting the use of arbitration provisions cannot be retroactive; any rule can apply only to agreements entered 180 days after the regulation’s effective date.
While the CFPB is widely expected to promulgate a rule, marking a sea change in this area, five major financial industry trade associations urged the CFPB to provide the public with a 60-day comment period prior to any rule-making. Among the many reasons offered in favor of an open comment period, the trade associations cited to: (1) the difficulty, to date, in quickly providing substantive comments given the sheer length of the study (more than 700 pages); (2) the highly selective manner in which the CFPB has cherry-picked the organizations from which it has sought reaction to its study; and (3) the unusual lack of transparency and public participation in the study itself. It is unclear how the CFPB will respond to these letters, but expect to see further action from the CFPB in response to the study in the near future.