In AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011), the United States Supreme Court ruled that the Federal Arbitration Act preempts state laws that prohibit consumer contracts from disallowing class-wide arbitration. On May 5, 2016, however, the Federal Consumer Financial Protection Bureau (CFPB) proposed a new rule that would restore consumer’s rights to bring class action lawsuits against banks and other certain financial firms.
In announcing the proposed rule, the CFPB asserted that mandatory arbitration clauses leave consumers with no choice but to seek redress for damages on their own while sparing financial services companies the prospect of having to face class action law suits in court. The CFPB’s proposed rule would apply to contracts governing personal checking and savings accounts, credit card accounts, prepaid cards, payday and installment loans, and student loans.
The American Bankers Association (ABA) swiftly criticized the CFPB’s proposal. The ABA accused the CFPB of putting the interests of plaintiff-side class action lawyers ahead of those of consumers. The ABA insists that arbitration is an efficient, fair, and less expensive alternative to litigation that benefits both the financial services industry and consumers.
The CFPB’s proposed rule is expected to take effect in 2017 after a ninety-day public comment and the required publication of a final rule. Fitch Law Partners LLP will continue to monitor developments regarding the CFPB’s proposed arbitration rule as well as industry responses thereto.