Comment Period on CFPB Rule on Class Action Waivers Ends August 22, 2016

Normally, this blog tries to discuss a point or procedure of law to help practitioners. However, this month’s blog is a summary of and a reminder that the comment period for the proposed rule on class action waivers for certain providers of consumer financial products is August 22, 2016. More than 4000 comments have already been filed and this is a huge issue in the consumer financial services industry. Comments can be made at https://www.regulations.gov/comment?D=CFPB-2016-0020-0001. A summary taken from the notice of proposed rulemaking is listed below:

The Bureau of Consumer Financial Protection (“Bureau”) is proposing regulations governing agreements that provide for the arbitration of any future disputes between consumers and providers of certain consumer financial products and services. The proposed rule would impose two sets of limitations on the use of pre-dispute arbitration agreements by covered providers of consumer financial products and services.

First, it would prohibit providers 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. This proposal is based on the Bureau’s preliminary findings that pre-dispute arbitration agreements are being widely used to prevent consumers from seeking relief from legal violations on a class basis, and that consumers rarely file individual lawsuits or arbitration cases to obtain such relief.

Second, the proposal would require providers that use pre-dispute arbitration agreements to submit certain records relating to arbitral proceedings to the Bureau. The Bureau intends to use the information it collects to continue monitoring arbitral proceedings to determine whether there are developments that raise consumer protection concerns that may warrant further Bureau action. The Bureau intends to publish these materials on its website in some form, with appropriate redactions or aggregation as warranted, to provide greater transparency into the arbitration of consumer disputes.

The proposal would apply to providers of certain consumer financial products and services in the core consumer financial markets of lending money, storing money, and moving or exchanging money, including most providers that are engaged in:

• extending or regularly participating in decisions regarding consumer credit under Regulation B implementing the Equal Credit Opportunity Act (ECOA), engaging primarily in the business of providing referrals or selecting creditors for consumers to obtain such credit, and the acquiring, purchasing, selling, or servicing of such credit;

• extending or brokering of automobile leases as defined in Bureau regulation;

• providing services to assist with debt management or debt settlement, modify the terms of any extension of consumer credit, or avoid foreclosure;

• providing directly to a consumer a consumer report as defined in the Fair Credit Reporting Act, a credit score, or other information specific to a consumer from a consumer report, except for adverse action notices provided by an employer;

• providing accounts under the Truth in Savings Act and accounts and remittance transfers subject to the Electronic Fund Transfer Act;

• transmitting or exchanging funds (except when integral to another product or service not covered by the proposed rule), certain other payment processing services, and check cashing, check collection, or check guaranty services consistent with the Dodd-Frank Act; and

• collecting debt arising from any of the above products or services by a provider of any of the above products or services, their affiliates, an acquirer or purchaser of consumer credit, or a person acting on behalf of any of these persons, or by a debt collector as defined by the Fair Debt Collection Practices Act. Consistent 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 regulation’s effective date.

To facilitate implementation and ensure compliance, the Bureau is proposing language that providers would be required to insert into such arbitration agreements to explain the effect of the rule. The proposal would also permit providers of general-purpose reloadable prepaid cards to continue selling packages that contain non-compliant arbitration agreements, if they give consumers a compliant agreement as soon as consumers register their cards and the providers comply with the proposed rule’s requirement not to use an arbitration agreement to block a class action.

If you want to provide input and help obtain the best possible result, now is the time to be heard. Remember the time period to make comments ends on August 22, 2016. The portal to make comments is easy to use and both consumers and industry groups are encouraged to make their voices heard. The opinions in this blog are solely the author’s and comments or suggestions can be sent to john@jrjoneslaw.com.

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