The American Bankers Association, the Consumer Bankers Association and The Financial Services Roundtable (Associations) have filed a joint letter commenting on the CFPB’s proposed rule regulating consumer arbitration agreements in financial services contracts. Ballard Spahr served as counsel to the Associations in preparing the comment letter.  The firm also served as counsel to the Associations in preparing comment letters on the CFPB’s March 2015 empirical study of arbitration and its April 2012 Request for Information Regarding Scope, Methods, and Data Sources for Conducting Study of Pre-Dispute Arbitration Agreements.

Section 1028 of the Dodd-Frank Act requires the CFPB to conduct a study of the use of arbitration in consumer financial services agreements.  It also provides that the CFPB “by regulation, may prohibit or impose limitations for the use of [such] an agreement” if it “finds that such a prohibition or imposition of conditions and limitations is in the public interest and for the protection of consumers.”  The findings in such a regulation must also be “consistent with the study.” (emphasis added).

In their comment letter, the Associations assert that the CFPB’s proposal is not in the public interest, is not for the protection of consumers, and is not consistent with the CFPB’s March 2015 empirical study of arbitration.  The Associations urge the CFPB to withdraw the proposal and not to issue a re-proposal unless it is consistent with the statutory requirements.

In support of their position, the Associations make the following arguments for why the proposal is not “in the public interest” and does not meet the requirement to provide for consumer protection:

  • The proposal would inflict serious financial harm on (1) consumers, (2) the American federal and state court systems, and (3) financial services providers.  The CFPB has estimated an unprecedented and staggering amount of costs to covered entities that will result from the additional class action litigation that will be filed if the proposal becomes final.  According to the CFPB, the proposal is estimated to cause 53,000 providers who currently utilize arbitration agreements to incur between $2.62 billion and $5.23 billion on a continuing five-year basis in defending against an additional 6,042 class actions that will be brought every five years after the proposed rule becomes final.  These costs are not one-time costs, but continuing costs as the increase in class action filings are perpetual.
  • Consumers will suffer if the proposal becomes final.  As taxpayers, they will pay for the increased costs to the court systems required to handle the permanent surge of 6,042 additional class actions every five years.  As litigants, they will suffer increased court backlogs that long delay resolution of their cases.  As customers of the providers, they will be saddled with higher prices and/or reduced services, because the billions of dollars in additional class action litigation costs will be passed through to them in whole or in part.  In at least 87% of those class actions, they will not benefit because, as the CFPB found in its study, consumers receive no compensation in 87% of class action settlements, and in the rare cases where they do receive a cash payment from a class action settlement, it will be a pittance–the CFPB’s study found that the average participant in the class actions who were granted any reward received $32.35.  Meanwhile, billions of dollars will be paid to the lawyers “representing” them.
  • While spending more as taxpayers and users of financial services, consumers will lose the many benefits of arbitration that the CFPB acknowledges in the proposal – resolving disputes in months, not years (at a fraction of the cost of litigation), receiving an average recovery of nearly $5,400 (166 times the average putative class member’s recovery of $32.35), and enjoying the much more accessible avenue of dispute resolution than  of not having to go to court.
  • Because arbitration is likely to disappear almost entirely if class action waivers are eliminated, consumers will lose access to a fast, efficient, less expensive, and more convenient dispute resolution system.  Most notably, it will no longer be a viable option for those who have small-dollar “non-classable” claims – i.e., claims that are not amenable to class action disposition because they do not implicate systemic conduct.  Consumers wanting to pursue non-classable claims will have to endure the inconvenience and costs of going to court.  This includes taking time off from work, paying court costs, and facing the challenges inherent in the court system to prosecute such claims.  Particularly for small dollar claims, consumers are likely to conclude that prosecuting the claim in court is more trouble than it is worth.
  • The CFPB has ignored other dispute resolution mechanisms that address the CFPB’s justifications for the proposal, specifically its concerns regarding resolution of small-dollar claims, redress for harms unknown to consumers, and the modulation of corporate behavior.  The CFPB has discounted the impact of informal resolutions, its own Complaint Response Portal, and social media.  It has also not mentioned the power of government enforcement actions, including its own, something the CFPB loudly touts in its public statements.  The CFPB also failed to consider, as required, alternatives that would address the CFPB’s concerns, such as allowing enforcement of class action waivers for matters that the financial services provider has identified and resolved prior to a class action being filed.

The Associations also argue that:

  • The proposal is not “consistent with” the CFPB’s study, as shown by the CFPB’s own data. The CFPB’s background discussion accompanying the proposal expressly confirms the Associations’ position that arbitration is faster, more economical, and far more beneficial to consumers than class action litigation and that the arbitration process is fair to consumers.
  • The study was incomplete on key issues that would have further demonstrated that the proposal is not in the public interest or needed for the protection of consumers.  The CFPB neglected to review the effect of its own administrative and enforcement activities and did not study consumer satisfaction with arbitration, as recommended.  Nor did it study either the impact on consumers and society if companies abandon arbitration or the costs to consumers and society of the additional 6,042 class actions that would be filed every five years.  It also did not investigate whether class actions are necessary as a deterrent given the impact of modern social media.  Finally, while its survey found a lack of awareness about arbitration as an option for dispute resolution, its Consumer Education and Engagement division spent none of its resources on educating consumers about arbitration.

 

 

 

 

 

The Pew Charitable Trusts has released an issue brief, “Consumers Want the Right to Resolve Bank Disputes in Court,” in which it urges the CFPB to “expeditiously finalize” its proposed arbitration rule.  The CFPB’s proposal would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The issue brief is an update to Pew’s 2015 “Checks and Balances” in which Pew pressed the CFPB to write new overdraft and other rules for checking accounts and eliminate binding arbitration provisions from checking account agreements.

The findings set forth in the issue brief are based on Pew’s (1) “nationally representative random-digit-dialing telephone survey of 1,008 adults on their attitudes toward arbitration and dispute resolution alternatives” conducted in November 2015, and (2) examination from 2015 to 2016 of “the disclosure boxes, fee schedules, and account agreements” for basic checking accounts used by “44 of the 50 largest banks based on domestic deposit volume as tabulated in June 2015 by the [FDIC].”

Pew’s findings include the following:

  • Pew states that “[e]ach year since 2013, Pew has evaluated the dispute resolution policies and practices disclosed by the 50 largest retail banks in the U.S.”  Pew found that among the 29 banks common to its four annual studies, the percentage of banks with an arbitration clause has risen from 59 to 72 percent, with nearly three-quarters of the 44 banks studied in 2016 using an arbitration provision.
  • Among the 29 banks common to all of Pew’s studies, the percentage of banks with class action waivers has risen from 52 to 66 percent since 2013, with nearly three-quarters of the 44 banks studied in 2016 using a class action waiver.
  • 95 percent of consumers want to be able to have a dispute with their banks heard in court.
  • Almost 9 in 10 consumers want to be able to participate in a group lawsuit.
  • 23 percent of consumers if faced with an issue at their bank would definitely take legal action.

Pew’s issue brief is flawed in numerous ways.  Pew states that the CFPB’s arbitration study and Pew’s poll “make clear that, in most cases, consumers would not take individual legal actions over a dispute but want the right to join class actions to hold companies accountable.”  Pew ignores, however, the critical fact that the CFPB’s study does not support the proposed rule.  The data in the CFPB’s study showed that individual arbitration is far more beneficial for consumers than class action litigation.  Had those data been part of Pew’s survey questions, they would have gotten a completely different result.  For example, if consumers had been asked, “If you had a dispute with your bank, and could choose between (A) going to arbitration and, if you won, recovering an average of $5,400 a few months after the arbitration started, or (B) being part of a class action in court in which 87% of the class members would never recover anything, while the remaining 13% would recover an average of $32 as part of a class settlement  after waiting for two or more years,” Pew would have found that consumers prefer arbitration to class action litigation and would not be urging the CFPB to finalize its proposed arbitration rule.

In addition, like the CFPB in conducting its study, Pew failed to survey consumers who have actually been through arbitration.  In April 2005, Harris Interactive released the results of an extensive survey of arbitration participants sponsored by the Institute for Legal Reform at the U.S. Chamber of Commerce.  That survey found high levels of satisfaction with the arbitration process among consumers who had actually participated in an arbitration.

In its conclusion, Pew states that “[c]lass action, in particular, is a cost-effective dispute resolution option”  but cites no authority for this bald, conclusory statement.  Once again, the statement is belied by the results of the CFPB’s arbitration study, which showed class actions to be a very costly and inefficient way of vindicating consumer rights.  87% of the class members received no relief whatsoever and of the 13% who received any relief, the average recovery was a paltry $32.35.  Pew also ignores the extraordinary burden on the court system and costs on the industry to defend class actions.  The CFPB itself has estimated that its proposed rule, if finalized, will cause 53,000 providers who currently utilize arbitration agreements to incur between $2.62 billion and $5.23 billion in costs on a continuing basis in defending against an additional 6,042 class actions that will be brought within the first five years after the rule becomes effective.  Since these costs will be passed through to consumers in whole or in part, consumers will suffer in the form of higher prices and/or reduced services and the plaintiffs’ class action bar will be the only beneficiaries of the CFPB’s rule.  It is very disappointing that Pew seems to be more concerned about the economic well-being of plaintiffs’ lawyers than of consumers themselves.

As noted above, based on its survey, Pew found that “almost 90% of consumers want the right to participate in class-action lawsuits against their banks.”  This finding is based on survey participants’ responses to the following statements:

I am going to describe a situation to you, and then ask how you would respond.  Imagine that you looked at your bank account statement and noticed that your bank had been charging you a fee for a service that you are sure you did not sign up for.  They may have been charging you this fee for a while now.  You called the customer service line, but the bank refused to do anything about the fees.  I am going to read you a list of legal options for what to do next in this situation.  For each tell me if you should or should not be allowed to do each of the following.”

Pew’s hypothetical scenario is flawed in that it assumes that the bank overcharge was a systemic issue affecting a class of consumers.  In fact, most overcharges are one-off unique events which are not amenable to class action treatment.

In describing the CFPB’s authority to promulgate an arbitration rule, Pew misstates what Section 1028 of the Dodd-Frank Act provides.  According to Pew, Dodd-Frank “authorizes the CFPB to limit or ban provisions in account agreements that restrict access to class-action litigation.”  This statement is inaccurate in three respects. First, Section 1028 directs the CFPB to conduct an arbitration study.  Second, it authorizes the CFPB to limit or ban pre-dispute arbitration agreements, not class action waivers.  Third, it only authorizes the CFPB to limit or ban pre-dispute arbitration agreements under prescribed conditions, namely if, based on its arbitration study, the CFPB finds doing so “is in the public interest and for the protection of consumers.”

We also question the significance of Pew’s finding regarding the increase in the percentage of large banks using arbitration provisions over four years.  Unless and until the CFPB issues a final rule that becomes effective, banks continue to have the legal right to adopt arbitration provisions. Based on Pew’s findings, 28 percent of the largest banks common to its four year study are not using arbitration.  And, of course, an even greater percentage of smaller banks do not use arbitration.  Nothing restricts the right of a consumer who does not like arbitration to change the bank he or she uses to one that does not use arbitration.

Finally, we have previously commented on the CFPB’s failure to devote any resources to educating consumers about the pro’s and con’s of arbitration and litigation, particularly class action litigation.  Like the CFPB, Pew has also devoted no resources to educating consumers about different dispute resolution methods.

 

By a vote of 236-181, the House of Representatives rejected an amendment offered by two Democratic Congressman to H.R. 5485, the Financial Services and General Government Appropriations Act, which covers appropriations for the fiscal year ending September 30, 2017.  (The bill was approved by the full House last month by a vote of 239-185.)  The amendment would have removed a provision in the bill establishing new requirements the CFPB would have to follow before it could finalize an arbitration rule.  The American Bankers Association had urged House members to reject the amendment.

In addition to various provisions intended to curb the CFPB’s authority, the bill includes a provision that states none of the CFPB’s funding “may be used to regulate pre-dispute arbitration agreements…and any regulation finalized by the Bureau to regulate pre-dispute arbitration agreements shall have no legal force or effect until the requirements regarding pre-dispute arbitration specified in the report accompanying [the bill] under the heading “Bureau of Consumer Financial Protection” are fulfilled.”  On May 5, 2016, the CFPB issued a proposed rule that would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

The “requirements regarding pre-dispute arbitration specified in the report accompanying [the bill]” include requirements related to a further study that must be conducted by the CFPB.  They also include a requirement for the CFPB to consider the costs and benefits to consumers in determining whether any final rule regulating pre-dispute arbitration rule is in the public interest and for the protection of consumers.

Such costs and benefits must include: (1) the practical effect on consumers’ access to low cost, fair, and efficient means of resolving claims for the types of injuries that consumers most often incur and that are less likely to be the subject of government enforcement actions; (2) the extent to which private class action proceedings on behalf of consumers regarding consumer financial products and services provide net benefits to consumers in light of the CFPB’s and other regulators’ enforcement and examination authority; (3) the practical effect of any regulation on the availability of pre-dispute arbitration; and (4) the impact of any regulation on the cost and availability of credit to consumers and small business.  The CFPB must find that the demonstrable benefits of any rule to consumers outweigh the costs to consumers, taking into account the foregoing factors and other relevant factors, and that the rule subjects pre-dispute arbitration to no more regulation than is necessary to serve the public interest and protect consumers.

 

A total of 102 Democratic lawmakers, consisting of 37 Democratic Senators joined by Independent Senator Bernie Sanders and 65 House members, have signed on to letters sent to Director Cordray expressing support for the CFPB’s proposed arbitration rule.  The proposal would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposal would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

Both letters tout the benefits of class actions for consumers and urge the CFPB to proceed “quickly” to finalize its proposal.  However, they rely heavily on the CFPB’s March 2015 empirical study on consumer arbitration, which actually contradicts their position that class actions benefit consumers.  The study showed that individual arbitration is faster, cheaper and far more beneficial to consumers than class action litigation.  For example, according to the CFPB’s study, while the average payment to consumers from class action settlements was a mere $32.35, the average arbitration award to consumers was $5,389.00, and the dispute was resolved in a few months rather than several years.

Comments on the proposal must be submitted by August 22.

 

 

 

 

On July 20, 2016, from 11:00 AM – 12:00 PM ET, the American Bar Association is sponsoring a program, “CFPB’s Proposed Arbitration Ban — What You Need To Know.”   The panelists will discuss the pros and cons of the CFPB’s arbitration proposal and its implications for industry.  Alan S. Kaplinsky, who chairs Ballard Spahr’s Consumer Financial Services Group, will be a panelist.  The other panelists joining Alan include a CFPB representative.

The CFPB’s proposed rule would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

A link to register for the program is available here.

 

 

By a vote of 239-185, the House of Representatives has approved a fiscal year 2017 appropriations bill that contains various provisions intended to curb the CFPB’s authority.  Those provisions would fund the CFPB through the annual congressional appropriations process rather than through transfers from the Federal Reserve as currently provided by Dodd-Frank and change the CFPB’s leadership structure from a single Director to a five-member Board of Directors appointed by the President.

The bill also includes a provision that states none of the CFPB’s funding “may be used to regulate pre-dispute arbitration agreements…and any regulation finalized by the Bureau to regulate pre-dispute arbitration agreements shall have no legal force or effect until the requirements regarding pre-dispute arbitration specified in the report accompanying [the bill] under the heading “Bureau of Consumer Financial Protection” are fulfilled.”  On May 5, 2016, the CFPB issued a proposed rule that would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

The “requirements regarding pre-dispute arbitration specified in the report accompanying [the bill]” include requirements related to  a further study that must be conducted by the CFPB.  The report lists various topics the CFPB must address in the study and mandates use of a research process “that includes peer review of the CFPB’s methodology and findings by a diverse group of individuals with relevant expertise in quantitative and qualitative research methods from the private and public sectors” but whose “expertise in research methods is unrelated to dispute resolution.”  The composition of the peer review panel is subject to rulemaking procedures, including notice and comment.  The CFPB must publish its tentative conclusions together with sufficient supporting and explanatory information, and solicit public comment.  In its report to Congress, the CFPB must explain its reason for disagreeing with significant comments. Concurrently with submitting its report to Congress, the CFPB must make a description of the peer review process publicly available.

The report also requires the CFPB to consider the costs and benefits to consumers in determining whether any final rule regulating pre-dispute arbitration rule is in the public interest and for the protection of consumers.  Such costs and benefits must include: (1) the practical effect on consumers’ access to low cost, fair, and efficient means of resolving claims for the types of injuries that consumers most often incur and that are less likely to be the subject of government enforcement actions; (2) the extent to which private class action proceedings on behalf of consumers regarding consumer financial products and services provide net benefits to consumers in light of the CFPB’s and other regulators’ enforcement and examination authority; (3) the practical effect of any regulation on the availability of pre-dispute arbitration; and (4) the impact of any regulation on the cost and availability of credit to consumers and small business.  The CFPB must find that the demonstrable benefits of any rule to consumers outweigh the costs to consumers, taking into account the foregoing factors and other relevant factors, and that the rule subjects pre-dispute arbitration to no more regulation than is necessary to serve the public interest and protect consumers.  The CFPB’s findings, together with its analysis and underlying data, must be published in the Federal Register.

The House Appropriations Committee had adopted an amendment to the appropriations bill that would block the CFPB from finalizing or enforcing a rule regulating payday lending until the CFPB submits a detailed report on the consumer impact to Congress and identifies existing credit products available to replace the current sources of short-term, small dollar credit.  However, because that amendment is not included in the version of the bill that is linked to the committee’s press release announcing the House’s approval of the bill, the status of the amendment is unclear.

 

The fiscal year 2017 appropriations bill approved last week by the House Financial Services and General Government Appropriations Subcommittee of the House Appropriations Committee includes the following provisions intended to curb the CFPB’s authority:

  • A provision under which, effective October 1, 2017,  the CFPB would be funded pursuant to the annual congressional appropriations process rather than through transfers from the Federal Reserve as currently provided by Dodd-Frank.  During FY 2017 (October 1, 2016 through September 30, 2017), when the CFPB requests transfers from the Fed, it must notify various House committees and include in the notice the amount of the funds requested, an explanation of how the funds will be obligated, and a statement regarding why the funds are necessary to protect consumers.  In addition, no later than two weeks after the end of each quarter of every fiscal year, the CFPB must provide the same House committees with a report that includes certain information such as the obligations made during the previous quarter and the actions taken to achieve the goals, objectives, and performance measures of each office.
  • A provision under which the CFPB’s leadership structure would be changed from a single Director to a five-member Board of Directors appointed by the President.

The bill also includes a provision that states none of the CFPB’s funding “may be used to regulate pre-dispute arbitration agreements…and any regulation finalized by the Bureau to regulate pre-dispute arbitration agreements shall have no legal force or effect until the requirements regarding pre-dispute arbitration specified in the report accompanying  [the bill] under the heading “Bureau of Consumer Financial Protection” are fulfilled.”  Although the report is not yet available on the Appropriations Committee’s website, the Committee’s press release about the bill states that it “requires the CFPB to study the use of pre-dispute arbitration prior to issuing regulations.”  Since the CFPB has already issued its “final” arbitration study, the bill would apparently require the CFPB to conduct a further study before a final rule could become effective.  On May 5, 2016, the CFPB issued a proposed rule that  would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

 

With the publication of the CFPB’s proposed arbitration rule in today’s Federal Register, the 90-day comment period is now running.  Comments on the proposal must be received on or before Monday, August 22, 2016.

The proposed rule would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

 

The CFPB has released its Spring 2016 rulemaking agenda.  The agenda sets the following timetables for key rulemaking initiatives: 

Arbitration.  The Spring 2016 agenda does not reflect the CFPB’s release of its proposed arbitration rule on May 5, 2016, stating only that the CFPB “is preparing to issue a Notice of Proposed Rulemaking this spring.”  The CFPB’s proposed rule would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed rule would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.  We do not expect to see a final rule until next year.

Payday and deposit advance loans.  The Spring 2016 agenda also does not reflect the CFPB’s announcement that it will hold a field hearing on small dollar lending in Kansas City, Missouri on June 2, 2016.  We anticipate the field hearing will coincide with the CFPB’s release of its proposed rule which is expected to cover single-payment payday and auto title loans, deposit advance products, and certain high-rate installment and open-end loans.  The Spring 2016 agenda indicates only that the CFPB is “conducting a rulemaking to address consumer harms from practices related to payday loans and other similar credit products” and gives a June 2016 estimated date for issuance of a Notice of Proposed Rulemaking (NPRM).

Prepaid financial products.  In November 2014, the CFPB issued a proposed rule for prepaid financial products, including general-purpose reloadable prepaid cards and certain digital and mobile wallets.  The Spring 2016 agenda estimates the issuance of a final rule in July 2016.  The Fall 2015 agenda had estimated that a final rule would be issued in March 2016.

Overdrafts.  The CFPB issued a June 2013 white paper and a July 2014 report on checking account overdraft services.  In the Spring 2016 agenda, as it did in the Fall 2015 agenda, the CFPB states that it “is continuing to engage in additional research and has begun consumer testing initiatives related to the opt-in process.”  Although the Fall 2015 agenda had estimated a January 2016 date for further prerule activities, the new agenda moves that date to August 2016.  In light of the fact that most of the banks subject to CFPB supervisory jurisdiction have changed the order in which they process electronic debits, we believe the CFPB feels less urgency to promulgate a rule prohibiting the use of a high-to-low dollar amount order to process such debits.

Debt collection.  In November 2013, the CFPB issued an Advance Notice of Proposed Rulemaking concerning debt collection.  In the Spring 2016 agenda, as it did in the Fall 2015 agenda, the CFPB states that “it is in the process of analyzing responses to a survey seeking information from consumers about their experiences with debt collectors and is engaged in qualitative testing to determine what information would be useful for consumers to have about debt collection and how that information should be provided to them.”  The agenda estimates that further prerule activities, which are expected to involve the convening of a SBREFA panel, will occur in June 2016.  The CFPB had estimated in its Fall 2015 agenda that further prerule activities would occur in February  2016.

Larger participants.  As it did in its Fall  2015 agenda, the CFPB states in the Spring 2016 agenda that it is considering  “larger participant” rules for “consumer installment loans and vehicle title loans.”  It also repeats the statement in the Fall 2015 agenda that the CFPB is “also considering whether rules to require registration of these or other non-depository lenders would facilitate supervision, as has been suggested to the Bureau by both consumer advocates and industry groups.”  (Pursuant to Dodd-Frank Section 1022, the CFPB is authorized to “prescribe rules regarding registration requirements applicable to a covered person, other than an insured depository institution, insured credit union, or related person.”)  While the prior agenda estimated a September 2016 date for prerule activities, the new agenda estimates a December 2016 date.

Small business lending data.  Dodd-Frank Section 1071 amended the ECOA to require financial institutions to collect and maintain certain data in connection with credit applications made by women- or minority-owned businesses and small businesses.  Such data include the race, sex, and ethnicity of the principal owners of the business.  The Spring 2016 agenda estimates a December 2016 date for prerule activities.  We recently reported that the CFPB had filled the position of Assistant Director for the Office of Small Business Lending Markets.  The CFPB’s job posting indicated that the Assistant Director would head the CFPB’s team involved in developing rules to implement Section 1071.  In the Spring 2016 agenda, the CFPB states that it “will focus on outreach and research to develop its understanding of the players, products, and practices in the small business lending market and of the potential ways to implement section 1071.  The CFPB then expects to begin developing proposed regulations concerning the data to be collected and appropriate procedures, information safeguards, and privacy protections for information-gathering under this section.”

Mortgage rules.  In November 2014, the CFPB issued a proposal to amend various provisions of its mortgage servicing rules.  The Spring 2016 agenda estimates issuance of a final rule in July 2016.  The previous agenda had estimated a June 2016 date.  The new agenda also estimates a September 2016 date for issuance of a proposed interagency rule to implement Dodd-Frank amendments to FIRREA concerning appraisals.  The previous agenda had estimated an April 2016 date.  In April 2016, the CFPB announced its intention to reopen the rulemaking for the TILA/RESPA Integrated Disclosure rule.  At that time, the CFPB indicated that a NPRM would likely be issued in late July and, consistent with that timetable, the Spring 2016 agenda estimates a July 2016 date for a NPRM.

Student Loan Servicing and Consumer Reporting.  As they were in the Fall 2015 agenda, both of these topics continue to be listed as “long-term action” items in the Spring 2016 agenda.

 

A recent editorial in the Wall Street Journal is a “must read” for those who will be affected if the CFPB’s May 5, 2016 proposed rule banning class action waivers in consumer financial services arbitration agreements becomes final. The editorial predicts that the proposed rule will encourage more class actions to be filed against financial services companies, that consumers will be shortchanged by the loss of arbitration, and that the only winners will be the trial lawyers who reap enormous financial benefits from class action settlements. We could not agree more.

Our only quibble is that the editorial states that other researchers “crunched the numbers” in the CFPB’s March 2015 arbitration study to arrive at the conclusion that “the average class member receives a whopping $32 from a settlement.” For the record, we believe that we first crunched those numbers during our March 18, 2015 webinar analyzing the CFPB’s study, and they were featured prominently in the July 13, 2015 comment letter sent by the American Bankers Association, the Consumer Bankers Association and The Financial Services Roundtable to the CFPB on July 13, 2015 for which we served as counsel.

As we have previously noted, the CFPB itself did not do the “long division” in the Study to arrive at the $32.35 number. However, the CFPB’s commentary on the proposed rule now confirms that our math was correct and that on average, putative class members in the settled class actions it studied received “approximately $32 per class member.” (Proposed Rule, p. 73 n. 305).

If you haven’t done so already, please register for our webinar this coming Monday, May 23, where we will address “The CFPB’s Proposed Arbitration Rule: What You Need to Know.” We will discuss, among other things, who and what is covered by the proposed rule, whether existing arbitration agreements will be grandfathered, whether arbitration agreements should continue to be used for individual arbitrations and what you can do to protect your company from the anticipated onslaught of class action litigation. We might even crunch some more numbers.