The Consumer Financial Protection Bureau’s proposed rule on pre-dispute arbitration agreements that would ban class action waivers in contracts for many consumer financial products, such as bank accounts and credit cards, despite widespread criticism from ACA International, industry groups, academics, and policymakers.
The rule, if finalized, would apply to providers of consumer financial products and services, including debt collectors.
Although the proposed rule does not ban arbitration agreements outright, if finalized, many companies will likely abandon arbitration altogether, taking this important option away from consumers, opening businesses up to opportunistic class action litigation, and significantly contributing to an already over-burdened court system.
The release of the proposed rule is the CFPB’s latest move aimed to expand their regulatory reach despite lacking evidence to support its policy position. Unlike class action lawsuits, which can be lengthy, complex, and ultimately provide very little actual relief to consumers, arbitration has proven to be a cost-effective, efficient, and consumer-friendly mechanism to resolve disputes. In fact, the vast majority of consumer disputes are resolved informally, before even getting to arbitration or litigation.
In July 2012, ACA filed comments in response to the CFPB’s request for information on the scope, methods, and data sources for conducting its study of pre-dispute arbitration agreements. In its comments, ACA emphasized that the CFPB must recognize the benefits to consumers of arbitration as compared to formal debt collection litigation. ACA also urged the CFPB to study the impact of revoking the use of arbitration as an alternative to formal litigation to resolve debt collection issues, including whether consumers will suffer higher prices for goods and services if arbitration is no longer a viable alternative to litigation.
Comments on the CFPB’s proposed rule will be due 90 days after publication in the Federal Register.
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