On October 7, 2015, the Consumer Financial Protection Bureau (CFPB) announced that it is exploring a rulemaking to eliminate the use of certain arbitration agreements in consumer contracts that block consumers from participating in class-action lawsuits. If enacted, the new rule will impact companies that fall within the CFPB’s broad interpretation of businesses that provide financial products and services for consumer purposes.

The announcement comes on the heels of the CFPB’s publication of a three-year study on arbitration that concluded that consumers generally are better served through litigation. According to CFPB Director Richard Cordray, arbitration clauses amount to “a free pass to sidestep the court and avoid accountability for wrongdoing.”

The CFPB does not intend to ban all arbitration agreements in consumer contracts. However, under the proposal, businesses within the CFPB’s jurisdiction will be required to include language in each consumer contract stating that the arbitration agreement does not apply to cases filed as potential class-action lawsuits unless a judge denies class certification or a court dismisses the underlying claims.

By its terms, the proposal will apply to arbitration agreements entered into 180 days from the effective date of any regulation. The CFPB indicated that it will set an effective date of 30 days after the rule is published. The proposal will drastically impact businesses. If passed, businesses will be required to revamp arbitration clauses contained in their consumer contracts within 210 days after the rule is published. Businesses also will likely shoulder increased class-action litigation costs because companies will no longer be able to rely on an arbitration agreement to support a motion to compel arbitration in a class-action case (until after class certification is denied or class claims are dismissed).

The proposal diverges from several Supreme Court decisions that have held that mandatory arbitration clauses can include class action bans, such as AT&T Mobility LLC v. Concepcion and American Express Co. v. Italian Colors Restaurant, as well as the Federal Arbitration Act enacted by Congress in 1925.

Additionally, the CFPB’s rulemaking seeks to impose a reporting obligation on businesses related to arbitration. Specifically, businesses will be required to report all new arbitration claims filed by consumers to the CFPB as well as each arbitration award. The CFPB has considered publishing the claims and awards to its website. This runs contrary to the confidentiality associated with arbitration actions that companies typically value. According to the CFPB, such publication will monitor “problematic business practices” and generate more transparency in the arbitration process.

This announcement marks the first step in the rulemaking process. The CFPB released its proposal and has invited comments from the public.