Yesterday, the CFPB published an outline of its proposed framework for regulation of arbitration agreements in contracts for consumer financial products like credit cards, auto leases and loans, residential mortgages and prepaid cards. Under the proposal, arbitration clauses in consumer financial contracts could be enforceable against an individual litigant, but must expressly state that they are not enforceable against a plaintiff class. CFPB Director Richard Cordray called arbitration terms a "free pass" for companies who use them to escape liability for profitable practices that harm consumers
The CFPB's March 2015 study estimated that terms which expressly prohibit judicially supervised class action currently appear in tens of millions of contracts. What about the economic impact of consumer protection regulation that opens consumer financial services providers to a barrage of class action lawsuits, including claims of disparate impact discrimination? Apparently, that is someone else's problem: "The Bureau understands that class lawsuits have been subject to significant criticism that regards them as an imperfect tool that can be expensive and cumbersome for all parties. However, the Bureau notes that Congress, state legislatures, and the courts have mechanisms for managing and improving class procedures over time."
Any final rule on consumer arbitration terms would apply to contracts made more than 180 days after the effective date of the regulation. The CFPB's proposal is still subject to a review by a small business panel under the consultative process required by the Small Business Regulatory Enforcement Act.