CFPB Moves Forward With Proposal To Ban Class Action Waivers In Arbitration

The Consumer Financial Protection Bureau has published its long anticipated 377-page proposed rule to bar banks and regulated financial institutions from including class action waivers in mandatory arbitration provisions in consumer contracts.

Mandatory arbitration clauses, and class action waivers, are pervasive in financial contracts. According to a study by the CFPB in 2015 arbitration clauses are used by 53% of credit card contracts, 44% of checking account agreements, 92% of prepaid card agreements, and 84% of storefront payday loan agreements.

The proposed rule would prohibit covered institutions from "using a pre-dispute arbitration agreement to block consumer class actions in court and would require providers to insert language into their arbitration agreements reflecting this limitation." The rule would apply to a range of financial products, including credit cards, checking and deposit accounts, prepaid cards, money transfer services, certain auto and