On July 10, the Consumer Financial Protection Bureau (CFPB) issued a final rule under Section 1028(b) of the Dodd-Frank Act that governs the use of arbitration by providers of a wide swath of consumer financial products and services. Once in effect, the rule will preclude providers of these financial products and services from including class action waivers in their pre-dispute agreements. But the rule’s future in the face of potential legal challenges and in Congress is far from certain.
Coming after the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion—which held that the Federal Arbitration Act (FAA) preempts state laws that bar the use of classwide arbitration waivers—the CFPB’s rule operates as an exception to the FAA. The rule consists of three main provisions. First, it prohibits providers and their affiliates from relying on mandatory pre-dispute arbitration agreements to bar consumer participation in class action suits concerning covered financial products and services. The CFPB’s definition of “covered products and services” reaches financial products and services that are offered or provided to consumers primarily for personal, family, or household purposes, including providing consumer asset accounts, extending consumer credit, providing credit reporting, and processing consumer payments using financial or banking data accepted “directly from a consumer . . . .”