On May 3, 2016, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule that would prohibit banks and other financial institutions from including arbitration clauses in consumer contracts that would prohibit consumers from participating in class actions.
The proposed rule only applies to bans on arbitration clauses that prevent consumers from filing or participating in a class action lawsuit. Arbitration clauses that require consumers to resolve individual disputes via arbitration may still be used. The rule would require financial institutions to include the following phrase in every agreement:
“We agree that neither we nor anyone else will use this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action even if you do not file it.”
The rule broadly defines the types of product and service contracts that must waive class action arbitration, including credit card agreements, checking and savings accounts, money transfer services, prepaid cards, installment loans, payday loans, auto loans, auto title loans, student loans and more.
The proposed rule would also require financial institutions to provide the CFPB with certain records pertaining to arbitration cases — including the original claim, any counterclaim, the arbitration agreement, any judgment or award and other documents — so that the agency can monitor the arbitration process for consumer fairness. The CFPB said that it intends to publish these records “with appropriate redactions” on its website in some form in the future.
The public has 90 days to comment on the proposed rule after it is published in the Federal Register. The CFPB has proposed that the rule go into effect 30 days after the final rule is published in the Federal Register.
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