As widely anticipated, the CFPB announced at its field hearing today in Albuquerque, New Mexico that it is proposing regulations that would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The proposed regulations would also require a covered provider that is involved in an individual arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the CFPB.

Comments on the proposal will be due on or before 90 days after it is published in the Federal Register.  In the proposal, the CFPB confirmed that “[c]onsistent with the Dodd-Frank Act, the proposed rule would apply only to agreements entered into after the end of the 180-day period beginning on the regulations’ effective date.”    

The CFPB is proposing an effective date of 30 days after a final rule is published in the Federal Register.  Therefore, the proposed regulations would not apply to arbitration agreements entered into before 210 days after a final rule is published in the Federal Register.  (Nevertheless, the proposed regulations raise numerous questions concerning whether arbitration agreements entered into before the effective date survive when various circumstances surrounding the agreements change after the effective date).

Thus, it is likely that any final rule would not take effect until the second quarter of 2017, at the earliest.  In the meantime, companies that do not presently use arbitration agreements in their financial services contracts should strongly consider adding them, since agreements entered into before a final rule becomes effective are grandfathered under existing law which is favorable to class action waivers.  Moreover, companies currently using arbitration agreements should promptly consult with counsel to consider what steps they can take to reduce litigation risks in light of the CFPB’s proposal.

Alan Kaplinsky, who leads Ballard Spahr’s Consumer Financial Services Group, was invited by the CFPB to attend the field hearing to present the financial services industry’s position on the proposal.  For more information on the proposal and Alan’s testimony, see our legal alert.