Nearly one year to the day after the United States Supreme
Court's ruling in AT&T Mobility LLC v. Concepcion,
563 U.S. ___ (2011), the Consumer Financial Protection Bureau
("CFPB" or "Bureau") made its first public
steps in a process that may ultimately lead to a legislative or
regulatory "veto" of that opinion. The CFPB issued a
Notice and Request for Information (the "Request")
seeking public comment on mandatory arbitration
clauses—the type at the center of Concepcion.
The CFPB's Request is part of a study on arbitration clauses
required by Dodd-Frank. Comments must be submitted before June 23,
Concepcion cleared the way for broad class arbitration
waivers in all types of agreements, including consumer finance
contracts. But, as noted in the April 2011 Jones Day
Does Dodd-Frank Provide the Seeds to Unravel Concepcion in Consumer
Transactions?" the long-term effect of Concepcion
depends on the outcome of the CFPB's mandated review of
arbitration clauses. Dodd-Frank requires the CFPB to conduct a
study on mandatory arbitration clauses for consumer financial
products and services and present its findings to Congress. Apart
from any potential congressional action, Dodd-Frank also gives the
CFPB the authority to prohibit or limit the use of arbitration
clauses through its rulemaking powers. The study, however, remains
necessary because Dodd-Frank requires that any Bureau rule on
arbitration clauses be "consistent with the study."
The Request seeks public comment to help the CFPB "identify
the appropriate scope, method, and sources of data" for the
study. The CFPB seeks answers to several specific questions that
essentially fall into three areas: (1) the prevalence of
arbitration clauses, (2) the types of arbitration claims brought by
consumers or financial service companies, and (3) the impact of
arbitration clauses. The Bureau's primary focus is on the third
category. It wants to know if consumers understand that predispute
arbitration agreements waive the ability to file a traditional
lawsuit. Additionally, as part of its "impact" analysis,
the CFPB requests comment on the effectiveness and fairness of the
arbitration forum in both access (e.g., cost to the consumer) and
procedure (e.g., protection of consumers during the arbitration
Absent from the CFPB's request, however, is an explicit call
for comment on waivers of class arbitration—the type of
provision at issue in Concepcion. The Bureau requests
responses on whether it should "focus on the prevalence of
particular terms" but does not pinpoint class waivers as a
potential term for review. Likely anticipating responses to
overturn or preserve the Supreme Court's holding in
Concepcion, the CFPB explicitly stated that it is not
seeking comment on whether (or how) it should utilize its ability
to regulate arbitration clauses.
The Request is just one piece of a broader study on arbitration
clauses. Although the parameters of the study are undisclosed, it
will likely include empirical data such as the percentage of
consumer finance contracts requiring arbitration divided into
product lines. Additionally, the Bureau will likely seek
information on the outcomes of consumer arbitrations. This presents
a question on how the Bureau will obtain this kind of data since
arbitrations are typically subject to confidentiality agreements.
It remains to be seen whether the CFPB will request information
directly from supervised entities.
The CFPB is required to publish its results to Congress. However,
given the political discord surrounding the contours of CFPB
authority—and any changes to the legislative bodies after
the November elections—it is difficult to predict how the
CFPB's results will be considered by Congress. Recent attempts
to resurrect the proposed Arbitration Fairness Act, which would
severely limit the use of arbitration clauses, have failed to gain
significant traction. Thus, any limitation on arbitration clauses
will likely come from the CFPB.
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The Proposed Rule revises the prior proposed rule the Regulators published in 2011 (the "2011 Rule"), implements section 956 of the Dodd-Frank Act, and attempts to strengthen supervision of banking organizations.
The industry generally is positive about the announcement, because the CFPB's guidance on the TRID rule to date (other than the original December 31, 2013, Federal Register issuance) has been presented as non-binding and informal.
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