Client Alerts

Arbitration Rule Now Effective

By Frances Floriano Goins Jennifer Monty Rieker

About Financial Services Consumer & Commercial Litigation

Despite initial criticism, the Consumer Financial Protection Bureau’s (CFPB) Arbitration Rule became effective on Monday, September 18, 2017. Compliance with the rule will be required March 19, 2018.

While companies will have until March 2018 to comply with the Rule, once a rule goes into effect, the only way to make changes, suspend or repeal a rule is for the agency to provide public notice of the proposed change and accept comments, a lengthy process.

The Arbitration Rule will bar companies from requiring consumers to agree to mandatory arbitration provisions in new contracts. It will also require companies to report to the CFPB claims and answers filed in arbitration proceedings as well as awards issued in arbitration. Because the Rule bars mandatory arbitration clauses in new contracts, existing contracts will not be affected. Therefore, the reporting requirements of the Rule may deter companies from enforcing their arbitration provisions.

Immediately following the announcement of the Arbitration Rule, both the acting head of the OCC and members of Congress questioned the Rule. Under the Congressional Review Act, Congress can review rules issued by government agencies, such as the CFPB. With a majority vote, Congress had the ability to overturn the rule. Summer recess combined with other pressing matters such as Hurricane Relief and voting on the debt ceiling may have delayed any further Congressional review of the Arbitration Rule.

Finally, there may be less of a push to void the Arbitration Rule in the wake of the recent Equifax data breach. Following the breach, Equifax offered credit monitoring to affected individuals, but also required arbitration of any issues related to the credit monitoring program. Equifax ultimately withdrew its arbitration requirement, following significant backlash.

With the Rule now effective, companies should analyze whether to continue enforcing their arbitration provisions in light of the reporting requirements, as well as begin re-drafting contracts to remove mandatory arbitration provisions.