Congress Overturns CFPB Proposed Rule on Arbitration

This summer I reported the news that after much study, the CFPB had issued its arbitration rule barring the use of arbitration clauses to preclude class actions with respect to financial services and contracts disputes.  The rule would have prohibited banks and other consumer financial companies from including mandatory arbitration clauses that block group lawsuits in any new contracts after the compliance date. The rule would not have barred arbitration clauses outright. By restoring the ability of consumers to file or join group lawsuits, the rule would have provided companies with more incentive to comply with the law. And the deterrent effect of such cases would have more broadly influenced the business practices of other companies as well. The new rule also would have required more transparency regarding arbitrations, in order to help the CFPB and others to better monitor arbitrations to make sure the process is fair for individual consumers. It was considered by many to be an important step in protecting consumers with respect to credit card and financial services disputes, especially because it is generally not feasible to pursue individual arbitrations on these small dollar claims.