CFPB Releases Long-Awaited Proposal On Pre-Dispute Arbitration Agreements

On May 5, 2016, the Consumer Financial Protection Bureau (CFPB or the Bureau) released a proposed rule¹ to prohibit the use of pre-dispute arbitration agreements to block consumer class actions. The Bureau's proposal reflects concerns about the effects of mandatory consumer arbitration provisions, and a final rule is likely to substantially reduce the efficacy of arbitration clauses for consumer lenders, significantly increase compliance costs and class action exposure, and reduce or eliminate the substantial benefits arbitration provides to consumers. While consumer groups and the class action bar are likely to welcome the proposal—as evidenced by remarks from representatives at a field hearing coinciding with the issuance of the proposed rule—legal challenges are expected to any final rule.