We are very pleased to report that the CFPB has denied a Petition for Rulemaking filed by a group of consumer advocate organizations that would prohibit the use of pre-dispute arbitration clauses in consumer contracts in favor of arbitration clauses that would permit consumers to choose between arbitration and litigation only after a dispute has arisen. The Petition was supported by 93 members of Congress (all Democrats) who argued in a letter to the CFPB that the proposed rulemaking was “much-needed” to protect consumers from “forced arbitration clauses in the fine print, take-it-or-leave-it terms accompanying many financial products and services.”
However, we and Cornell University Professor David Sherwyn urged the CFPB to deny the Petition in a lengthy comment letter and subsequent podcast.
We also published a blog criticizing 31 comment letters submitted by academicians and additional consumer advocates in support of the proposed rule. We argued that the proposed rule was bad for consumers, bad for companies, bad for the judicial system, and bad for the U.S. economy. We also emphasized that it was prohibited by the Congressional Review Act (CRA) because it was substantially the same as the final arbitration rule promulgated by the CFPB in July 2017, which Congress overrode under the CRA on November 1, 2017. That rule would have prohibited the use of class action waivers in consumer arbitration clauses.
While stating its belief that the proposed Petition highlighted “an important and growing area of risk facing consumers in the market for consumer financial products and services,” the CFPB denied the Petition citing its “full rulemaking agenda and limited resources.” It further acknowledged that its earlier final arbitration rule “did not go into effect” because it was repealed by Congress under the CRA.