After the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 authorized its creation, the Consumer Financial Protection Bureau (CFPB) began operating on July 21, 2011. In the more than five years since it opened its doors, the CFPB has rarely appeared shy or hesitant about asserting its authority. Critics—most often the businesses over which it exercises jurisdiction, or proponents of “limited government”—in fact have assailed the agency as a prime example of allegedly unaccountable bureaucrats run amok. Still, few steps taken by the CFPB have aroused its critics’ ire as much as its now-pending proposal to stop banks and other financial firms from placing class action bans in consumer contracts.
In May of this year, the CFPB unveiled a proposal to rein in financial services companies’ use of mandatory arbitration clauses in consumer contracts. The proposal does not ban mandatory arbitration clauses for individual claims, but calls for the removal of bans on consumers joining in class action lawsuits over alleged wrongful acts by financial services firms. Almost immediately, the proposal sparked an outcry in the financial services industry, and the passions on both sides of the key issues have not subsided since. The Bureau has already received an unusually large volume of comments, and the comment period continues. The proposal clearly alarmed the consumer financial services industry, with market participants such as banks and payday lenders arguing heatedly that eliminating the class action ban from arbitration clauses would essentially eliminate arbitration as an option for consumers. They see arbitration as being significantly more affordable and convenient for individuals who believe they have actionable claims to assert against the financial firms. Attempted class actions, a potential means of reducing costs for individual consumers, ultimately often fail to survive judicial scrutiny (due to legal and factual hurdles to class certification), but even having to challenge class certification can be costly enough to business defendants that they regularly contractually seek to preclude litigation—and say they will not pay for consumer arbitration programs if the threat of a class action in court remains intact. Continue Reading