This dispatch comes from frequent guest blogger Jean Sternlight (UNLV).
I am writing this blog having just returned from Denver, where I participated in the Consumer Financial Protection Board Field Hearing discussed yesterday at Indisputably by Professor Sarah Cole. As Sarah noted, the CFPB is proposing to prevent companies from using mandatory arbitration to prevent financial consumers from participating in class actions or group claims. The CFPB is also proposing to require companies to send it documentation on consumer financial claims in which arbitration is initiated, so that the CFPB and perhaps the public can monitor how these claims are processed. I was fortunate to be one of six panelists invited to speak on the tentative proposals.
I write to add just a few points to Sarah’s excellent post:
(1) As a practical matter, the CFPB is not quite yet to the point of proposing the new regulation. Rather, before the CFPB can commence the actual rulemaking process it must first get through a review process designed to ascertain how the rule might impact small business. I think the tentative rule will make it through this process, but it is not guaranteed.
(2) The Denver field hearing was fascinating. Three consumer advocates (including me) spoke in favor of the tentative rule. Attorney Alan Kaplinsky (who rightly claimed arbitral class action prohibitions to be his “baby”) opposed the rule on the ground that consumers would purportedly be harmed. A credit union official said his bank does not use arbitral class action prohibitions. And, Professor Stephen Ware argued for what he calls a “reasonable” solution – allowing arbitral class action prohibitions to be attacked on the same grounds that non-arbitral class action prohibitions can be attacked (rather than outlawing them entirely). Then, about eight audience members all supported the rule. No audience members opposed the tentative rule.
(3) I think this tentative rule is a really big deal. Admittedly, it is only a partial “fix” to the mandatory arbitration problem. The tentative rule would only eliminate arbitral class action prohibitions in the consumer finance sector, not in other consumer or employment contexts. And, the tentative rule would not generally eliminate mandatory arbitration in the consumer finance world. Nonetheless, this rule, based on the fabulous CFPB study, would take a big first step towards reining in abusive mandatory arbitration. And, Alan Kaplinsky stated (admitted?) that if companies could not use arbitration to eliminate class actions they would not use it at all, so perhaps some other abusive mandatory arbitration practices will be ended as well.
(4) While I am exuberant at this tentative step I am well aware that a big fight lies ahead for the CFPB. The Chamber of Commerce et al will try hard to prevent this rule by, for example, asking Congress to defund or rein in the CFPB, or bringing a lawsuit to argue that the CFPB has exceeded its authority. The timing on all this is tricky as the tentative rule will almost certainly not take effect until after the 2016 election.
(5) My exuberance is also lessened by the thought that all of this reform, if successful, will just take us back to where we thought we were about fifteen years ago, before companies had realized that they could use mandatory arbitration to destroy class actions. We will still have the problem of mandatory arbitration clauses that block consumers and employees from obtaining access to justice in other ways.
(6) Nonetheless, I hope all on this list will lend their support to the CFPB’s efforts. The agency will need all the help it can get.
