United States: A New Wave Of Class Actions Against Banks And Credit Card Companies? The CFPB's New Rule And Its Likelihood For Survival

Key Points

  • Banks and credit card companies will no longer be able to compel consumers into arbitration to avoid class action lawsuits, based on a new rule from the Consumer Financial Protection Bureau (CFPB).
  • The new rule has received widespread criticism, with opponents arguing that the rule is anti-consumer, anti-business and promotes frivolous litigation.
  • Congress can, and likely will, take action to nullify the new rule before it goes into effect next year, which would also prohibit the CFPB from attempting to enact any similar type of rule in the future.
  • Even if Congress does not act, substantial political and legal challenges threaten to undercut the power of the CFPB, and of its Director, Richard Cordray, in particular.

Background of the CFPB's New Rule

The CFPB was created by Dodd-Frank legislation in 2010, and, among other things, was tasked with studying and issuing a report on arbitration agreements in the financial products sector (e.g., bank accounts, credit card agreements). Dodd-Frank also authorized the CFPB to enact appropriate regulations based on the results of its study. In 2015, the CFPB concluded that class action waivers in banks' and credit card companies' arbitration agreements were harmful to consumers. As a result, on July 10, 2017, the CFPB issued a new rule prohibiting banks and credit card companies from including class action waivers in their arbitration agreements with consumers. Without such waivers, consumers are able to consolidate their cases into class actions, provided that they are able to meet other legal requirements for filing class actions.

In addition to prohibiting class action waivers in arbitration agreements, the rule imposes significant reporting requirements on banks and credit card companies that choose to continue using arbitration agreements. Companies are required to provide records to the CFPB regarding their arbitrations, including claims sought, counterclaims raised, other filings and final awards that are issued. The CFPB intends to post these materials (after redacting consumers' personal information) on its website beginning in July 2019.

Analysis of the New Rule: Arguments For and Against

The new rule has sparked contentious debate on both sides. Supporters of the rule argue that class actions are the only way for consumers to seek redress for low-value claims and for companies to be held liable for these harms. They argue that this is supported by the CFPB report's data, which showed that only 78 consumers sought arbitration throughout the duration of the time period studied (2008–2012). They also rely on the report's finding that there was no evidence to show that arbitration classes led to lower prices for consumers by allowing companies to avoid costly class actions.

On the other hand, opponents challenge the CFPB's alleged basis for creating the rule, and they claim that the rule is actually anti-consumer, anti-business and serves only to benefit lawyers and spawn frivolous litigation.

Critics of the rule argue that, according to the CFPB's own data, arbitration does a better job of protecting consumers than class actions do. The report shows that, from 2008-2012, consumers received only about 55 percent of the cash relief for which companies were held liable (as a result of settlements or otherwise), because of attorney's fees and class members failing to claim their awards. Lawyers, on the other hand, earned more in attorney's fees than what was distributed to consumers. Further, the average payout to consumers in class actions was $29 per person, whereas, in arbitration, the average payout was $4,615 per person.

Opponents further argue that not only does the new rule not help consumers, it actually hurts them, by making arbitration unavailable and raising consumer prices. Without the stability of knowing that claims will proceed quickly and individually at arbitration, they argue, companies will abandon their practice of paying for arbitration. Thus, consumers would not resort to arbitration unless they were willing to pay the costs, which can be in the tens of thousands of dollars (or more). Further, critics of the rule argue that, as companies' costs increase due to class action litigation—which takes longer, costs more, and carries more financial risk for companies than arbitration—these costs will ultimately be borne by consumers because of increased prices.

Will the New Rule Survive?

Notwithstanding the vigorous debate on both sides, Congress seems primed to take action against the CFPB to nullify the rule using its authority under the Congressional Review Act (CRA). Under the CRA, Congress can nullify a regulation by passing a resolution of disapproval within 60 days of the regulation being published in the Federal Register. The resolution of disapproval needs only a majority vote of both houses, and, if signed by the President, it would prevent the CFPB from attempting to enact any similar type of rule in the future without first getting congressional authorization.

The CFPB's rule has not yet been published in the Federal Register, but Sen. Tom Cotton (R-AR) has already indicated that he will move for a resolution of disapproval, and Rep. Roger Williams (R.-TX) joined Sen. Cotton in publicly criticizing the rule.

Some hypothesize that the CFPB sought to issue the rule while Congress was busy with other matters (the health care bill, tax reform, Russia investigation), hoping that it would slide under the radar. However, Congress' other matters might have the opposite effect, since commentators have suggested that Republicans can use the nullification of the CFPB rule to save face in light of the challenges they have encountered with the health care bill.

Even if Congress does not take action under the CRA, several other challenges to the CFPB's authority loom in the background. First are challenges to the CFPB's leadership. The D.C. Circuit Court of Appeal recently held that the structure of the CFPB is unconstitutional and that the Director should be removable at the will of the President without the President needing a particular "for cause" justification. That case was reheard by the D.C. Circuit earlier this year, and, if the en banc panel reaches the same conclusion, it is likely that President Trump would replace the current Director, Richard Cordray. A new Director could put a "stay" on the rule, pushing back its effective date and calling for further commentary that could ultimately result in withdrawing the rule entirely.

Second, legislation is currently pending that seeks to reduce the CFPB's power. One proposed change would revoke the CFPB's authority to enact regulations that restrict arbitration clauses, thus removing the power that allowed the CFPB to create the new rule in the first place. Another proposed change would change the CFPB's leadership structure by no longer having a single director at the helm, but instead a multimember commission.

Lastly, the CFPB's rule can be challenged by other government agencies. The Office of the Comptroller of Currency (OCC) has already raised concerns with the rule. The head of the OCC asked the CFPB to provide the exact data and analysis that it used to support its conclusion that the rule was needed. Additionally, the Financial Stability Oversight Council has the authority to veto any CFPB regulation by filing a petition to veto within 10 days of the rule's publication in the Federal Register. If eight of the council's 11 members vote against the rule, it will be vetoed. Such a veto, however, does not automatically prohibit substantially similar rules in the future the way that Congress' nullification under the CRA does, because the CFPB would be able to propose changes and ask for Council approval later. There are only four Obama appointees currently on the Council, so President Trump would need only one to flip in order to have enough votes for a veto.


If the CFPB's new rule goes into effect, it would deal a potential knockout blow to banks' and credit card companies' ability to avoid consumer class actions through arbitration agreements. According to the rule's opponents, the new rule is bad not only for business, but for consumers as well. Most likely, it will not survive for long. Congress, the President and other government agencies seem poised to take action to counteract the rule and restrict the CFPB's authority. As long as the rule stands, one thing is certain: it will continue to be the subject of debate and attack. It remains to be seen whether the rule will survive. Stay tuned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions