CFPB bans arbitration clauses on credit cards, accounts

July 10, 2017 -- A ban on mandatory arbitration clauses – such as those covering consumer financial products, including credit cards and bank accounts, and which block consumers from joining in class actions to sue for alleged wrongdoing – was announced Monday by the CFPB.

"Arbitration clauses in contracts for products like bank accounts and credit cards make it nearly impossible for people to take companies to court when things go wrong," said CFPB Director Richard Cordray in a statement. "These clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up. Our new rule will stop companies from sidestepping the courts and ensure that people who are harmed together can take action together." 

According to the bureau, under the rule (which will become effective 60 days following its publication in the Federal Register, and will apply to contracts entered into more than 180 days after that) companies can still include arbitration clauses in their contracts. However, companies subject to the rule may not use arbitration clauses to stop consumers from being part of a group action. The rule includes specific language that companies will need to use if they include an arbitration clause in a new contract, CFPB stated.

The rule also makes the individual arbitration process more transparent, CFPB stated, by requiring companies to submit to the bureau certain records, including initial claims and counterclaims, answers to these claims and counterclaims, and awards issued in arbitration.

CFPB stated that its new rule applies to the major markets for consumer financial products and services that the bureau oversees, including those that lend money, store money, and move or exchange money. (Arbitration agreements in the residential mortgage market, CFPB noted, are already prohibited.)

Exemptions under the new rule include those for broker dealers and investment advisers overseen by state regulators; employers when offering consumer financial products or services for employees as an employee benefit; entities regulated by the Securities and Exchange Commission or the Commodity Futures Trading Commission, which have their own arbitration rules; and state and tribal governments that have sovereign immunity from private lawsuits. 

LINKS:
CFPB: New protections against mandatory arbitration

Text of the new CFPB arbitration rule

Executive Summary, Arbitration Final Rule

Arbitration Implementation Guide