Could the CFPB Change the Rules on Arbitration Clauses?
Of the 87 studies required by the Dodd Frank Act, one may get a bump up the priority list thanks to the recent U.S. Supreme Court decision in CompuCredit v. Greenwood, which upheld the rights of companies to include mandatory arbitration clauses in their user agreements. Several consumer groups disagreed with the court’s ruling and are calling on the new Consumer Financial Protection Bureau (CFPB) to get involved sooner rather than later. Section 1028 of Dodd Frank directs the CFPB to conduct a study and report to Congress on restricting mandatory pre-dispute arbitration, however, Congress set no deadline for completing the study. Once the CFPB does complete the study, the bureau has the authority to “prohibit or impose conditions or limitations” (via regulation) on arbitration agreements. The bureau’s rules must be consistent with the study.
The National Consumer Law Center (NCLC) recently issued a release protesting the court’s decision and pressing the CFPB to get started on the study. “The Supreme Court decision makes it all the more urgent for the Consumer Financial Protection Bureau to stop companies from using forced arbitration clauses to hide from the law,” said the group’s managing attorney Lauren Saunders. Saunders added, “Forced arbitration puts a thumb on the scales of justice in favor of predatory lenders...”
There are also bills in Congress that would amend the Federal Arbitration Act so that pre-dispute arbitration agreements would be invalid and unenforceable if they concern disputes related to employment, consumers, or civil rights. The Arbitration Fairness Act of 2011 (S. 987), sponsored by Sen. Al Franken (D-MN), asserts that mandatory arbitration clauses were “intended to apply to disputes between commercial entities of generally similar sophistication and bargaining power,” not consumers. Rep. Hank Johnson (D-GA) is sponsoring companion legislation (HR 1873) in the House. Both bills are sitting in their respective judiciary committees and not expected to move any time soon in this contentious election year. FRW is watching the CFPB for the next move.
