UNITED STATES – The Consumer Financial Protection Bureau (“CFPB”) recently announced that it intends to limit the scope of mandatory arbitration clauses contained in consumers’ agreements with credit card companies and other consumer financial institutions. To this point, credit card companies have been able to obstruct efforts by aggrieved consumers to bring class actions by invoking mandatory arbitration provisions in their contracts, known as “free pass” clauses. Under those provisions, aggrieved consumers must redress their injuries in arbitration rather than participating in any sort of group action in state or federal court. In most instances, though, the injuries suffered by consumers are relatively small—deterring consumers from incurring the costs of filing an arbitration action. Thus, according to a study by the CFPB released in March, few actions are ever brought to hold consumer finance companies accountable for their alleged misconduct.
Last week, the CFPB published an outline in which it detailed the rules it intends to promulgate to prevent consumer finance companies from invoking their oppressive “free pass” provisions. According to the CFPB, among other possible rules, it is considering a rule that would render mandatory arbitration provisions inapplicable to cases filed as class actions unless a court denies class certification on the consumers’ claim or the court dismisses the class allegations. The CFPB believes that there are three primary benefits of its proposal: (1) a day in court for consumers; (2) a deterrent effect that would incentivize companies to comply with the law to avoid lawsuits; and (3) increased transparency.
The CFPB’s outline can be found here.