Business Law Today
Predispute consumer arbitration has sparked energetic debate and sharply divides the utility of the class action versus the utility of individual arbitration. Thus far, the U.S. Supreme Court’s jurisprudence has given a “thumbs up” approach to predispute consumer arbitration waivers, which almost always include a class waiver agreement. Congress showed little interest in amending the Federal Arbitration Act (“FAA”), even for consumer cases. It seems that consumer arbitration was the “wild west” of the law, in that it was largely unregulated and could direct claims to the black hole of private dispute resolution. In May 2016, the Consumer Financial Protection Bureau (“CFPB”) issued a proposed rule prohibiting predispute arbitration agreements in providing consumer financial services products. This rule would prohibit mandatory predispute arbitration agreements in consumer agreements for items such as checking or savings accounts, credit cards, student loans, payday loans, automobile leases, debt management services, some payment processing services, other types of consumer loans, prepaid cards, and consumer debt collection. The rule would also prohibit predispute arbitration agreements in connection with providing a consumer report or credit score to a consumer or referring applicants to creditors to whom requests for credit may be made.
The CFPB’s arbitration class-waiver ban is essentially an election of the class action to the expense of individual arbitration. This policy choice is premature and is not yet supported by the data. Requiring businesses to fully fund and incentivize consumer arbitration in a fair and transparent way could provide a vehicle for individualized low-cost consumer relief. The CFPB should take the time pending issuance of its final rule, under a new Executive Branch, to issue regulations that will make consumer arbitration more susceptible to empirical study, more transparent, and cost free for the consumer.
Ramona L. Lampley, The CFPB Proposed Arbitration Ban, the Rule, the Data, and Some Considerations for Change, Bus. L. Today (May 2017).