By Mark Kantor
On April 24, the US Consumer Finance Protection Bureau (CFPB) announced that it is commencing its review of mandatory pre-dispute arbitration agreements with respect to consumer finance products and services. See the Bloomberg report of the CFPB announcement here.
As readers may know, there has been heated discussion that the US Supreme Court decision in AT&T Mobility LLC v. Concepcion will enable financial institutions to compel consumers to arbitrate disputes under contracts of adhesion, but deny consumers the leverage of class actions – that Concepcion will de facto kill consumer class actions. The legislative authority of the CFPB to ban or limit pre-dispute arbitration agreements between a financial institution and a consumer for a “consumer financial product or service” has sometimes been overlooked in that discussion.
Many consumer contracts do not involve consumer financial products or services (e.g., mobile phone contracts and retail sales). However, credit cards, bank accounts, money orders, money transfers, and many other financial services and products encompass a large proportion of consumer contracts typically containing arbitration clauses in the US.
Back in 2010, the Dodd-Frank financial reform legislation banned mandatory pre-dispute arbitration agreements for residential mortgages and home equity lines of credit and for certain financial “whistleblower” disputes. In addition, that legislation (i) authorized the SEC, after a review, to limit or prohibit mandatory pre-dispute arbitration agreements with respect to claims against broker-dealers and investment advisors and (ii) authorized the newly created Consumer Finance Protection Bureau, after a review, to limit or prohibit mandatory pre-dispute arbitration agreements with respect to claims with respect to consumer finance products and services (read more here).
The announcement by the CFPB triggers the beginning of the consumer finance arbitration review process contemplated by Dodd-Frank. The SEC has not yet formally begun its similar review with respect to broker-dealers and investment advisers (which, unlike the CFPB review of consumer finance transactions, is not limited to transactions with individuals).
Mark Kantor is an international arbitrator who teaches courses in International Business Transactions and in International Arbitration as an Adjunct Professor at the Georgetown University Law Center (Recipient, 2006 Fahy Award for Outstanding Adjunct Professor). He is also a Fellow at the Vale Columbia Center for Sustainable International Investment (a joint undertaking of Columbia Law School and the Earth Institute at Columbia University).