On October 7, the CFPB announced at a field hearing in Denver, Colorado, that it plans to propose rules via its rule-making authority that would prohibit financial services companies from including class action waivers in arbitration clauses with consumers.

The CFPB previously published an outline of proposals regarding this effort and sought feedback from stakeholders. Specifically, this class action waiver ban would apply to most consumer financial products, such as credit cards, checking and other deposit accounts, prepaid cards, some auto loans, auto title loans, specialty finance loans and payday loans, installment loans, and private student loans. The CFPB generally has enforcement authority over these products and services.

The CFPB’s proposal provides that regulated companies could give the consumer a choice of bringing a class action in court or in an arbitration proceeding. But the industry and scholars have suggested that class actions are not well-suited for arbitration proceedings. 

At various field hearings in the past, the CFPB has indicated that it is a data-driven agency. The CFPB’s proposals could require companies that will continue to utilize mandatory arbitration clauses to submit to the CFPB arbitration claims filed and the awards issued as a result, if any. The CFPB would then use this information to monitor the equities of the arbitration process within the industry. And, undoubtedly, the CFPB would disclose these awards to the public to promote transparency.

Many industry experts believe that if the CFPB’s proposals become final, the result will be that companies may simply forgo using arbitration to resolve disputes with consumers. This consequence may increase litigation costs between creditors and consumers and curb settlement options.

These proposals would be subject to the rule-making process, which involves publishing the proposed rule for public review, a public comment period, and issuance of a final rule by the CFPB. Hence, following this timeline, assuming that the CFPB presses forward, the final rule may not be effective until early 2017.