In a blog post earlier this week, Professor Jeff Sovern took issue with statements made by a legal expert that suggest an amendment to the Federal Arbitration Act would be necessary for the CFPB to ban class action waivers in arbitration agreements. Regardless of whether Professor Sovern is correct, proponents of a class action waiver ban should keep in mind that the CFPB’s authority under Section 1028 to issue an arbitration rule is also subject to several important limitations.
First, Section 1028 requires that “[t]he findings in such rule shall be consistent with” the arbitration study that Section 1028 mandates the CFPB to conduct before issuing a rule prohibiting or limiting the use of arbitration agreements. Second, Section 1028 requires the CFPB to “find that such a prohibition [against using an arbitration agreement] or imposition of conditions or limitations [on using an arbitration agreement] is in the public interest and for the protection of consumers.”
As we have indicated in our comment letter to the CFPB on behalf of the American Bankers Association, Consumer Bankers Association and Financial Services Roundtable and in our recent legal alert about the CFPB’s outline of its proposal in anticipation of convening a SBREFA panel, we do not believe that the CFPB’s Arbitration Study or its report accompanying its proposal support a class action waiver ban or a finding that such a ban is “in the public interest and for the protection of consumers.” In addition, Section 1028 may be vulnerable to a constitutional challenge on the basis that it is an unlawful delegation of legislative authority to an agency.