The CFPB has banned private dispute resolution platform Ejudicate from arbitrating disputes about consumer financial products, saying that the company had misled student borrowers about the company’s neutrality and initiated sham arbitration proceedings.
The CFPB said that Ejudicate initiated those proceedings on behalf of the company Prehired—a firm which was shut down in 2023 by the CFPB and several state attorneys general, in part on the grounds that its income share agreements were illegal loans and its income share agreement program involved illegal lending practices.
Ejudicate is a private arbitration company based in Los Angeles, California that provides an online dispute resolution platform. The CFPB asserted that Ejudicate served as a service provider to Prehired by knowingly allowing it to initiate sham arbitration proceedings, facilitating the collection of allegedly defaulted income share agreements, and by “providing other advice, feedback and assistance” to it in connection with student disputes and collections. .
Prehired offered income share agreements to students in conjunction with an online vocational training program it offered.. The CFPB said that when Prehired’s income share agreement collection practices first came under CFPB scrutiny, Prehired unilaterally changed the terms of its contracts to force consumers into arbitration through Ejudicate.
The CFPB had found that Ejudicate treated Prehired borrowers unfairly. In addition, the CFPB said, the company was not truthful about the fact that its financial interests were aligned with Prehired.
Specifically, the CFPB found that Ejudicate harmed borrowers by:
- Falsely claiming to be a neutral arbiter when it received a contingency fee of 15% of the settlement amount for any dispute that was settled..
- Unfairly attempting to bind consumers to sham proceedings by requiring consumers to agree to its terms, which purported to bind consumers to its dispute resolution proceedings, even if consumers just wanted to review the claims against them. That left borrowers with little opportunity to gather evidence or to contest the claims lodged against them.
- Starting arbitration proceedings without borrower consent. Although the company was aware that consumers had not agreed to arbitrate on the Ejudicate platform, it initiated arbitration proceedings for claims that sought tens of thousands of dollars from individual students.
In addition to permanently banning Ejudicate from arbitrating disputes about consumer financial products or services, the bureau also imposed a nominal civil penalty of $1 because of the company’s demonstrated inability to pay more.
We believe this is the first time that the CFPB has banned an arbitration administrator from operating. In 2009, the National Arbitration Forum agreed to stop arbitrating consumer credit disputes after being sued for conflicts of interest by the Minnesota Attorney General.
By way of additional context, after conducting a multi-year empirical study of consumer arbitration authorized by Section 1028 of the Dodd-Frank Act, the CFPB issued a Final Arbitration Rule in July 2017 with a March 19, 2018 mandatory compliance date. The Final Arbitration Rule, which purported to ban the use of class action waivers in arbitration provisions in consumer financial service contracts, effectively would have repealed AT&T Mobility LLC v. Concepcion , in which U.S. Supreme Court upheld the validity of class action waivers in consumer arbitration agreements.
However, in October 2017, the Final Arbitration Rule was repealed by a Congressional Review Act (CRA) resolution passed by the House and Senate Under the CRA, a rule that has been disapproved by Congress (as was the Final Arbitration Rule) “may not be reissued in substantially the same form, and a new rule that is substantially the same as such a rule may not be issued, unless the reissued or new rule is specifically authorized by a law enacted after the date of the joint resolution disapproving the original rule.”
That limitation in the CRA on the power of the CFPB to regulate arbitration agreements arguably would not restrict the CFPB from attacking elements of an arbitration agreement or process that constitute a UDAAP violation as long as the CFPB does not attempt to prohibit class action waivers and does not otherwise run afoul of the Federal Arbitration Act. To that end, the CFPB stated that it was taking action against Ejudicate pursuant to Sections 1031 and 1036 of the Dodd-Frank Act, which prohibit covered persons from engaging in unfair, deceptive, or abusive acts or practices. The CFPB’s enforcement action is a reminder that banks and other financial services companies should take a fresh look at their arbitration provision terms and processes to avoid potential UDAAP issues.
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