On Oct. 7, 2015, the Consumer Financial Protection Bureau (CFPB) announced at a field hearing in Denver, Colo., that it was considering regulations that would require banks and other consumer financial institutions to include a term expressly permitting class action lawsuits in all pre-dispute arbitration agreements with consumers.1 Despite pushback from the financial industry, the CFPB, which receives its funding from the Federal Reserve rather than appropriations from Congress, may well pursue its plan to regulate arbitration agreements in contracts within its jurisdiction. This is a significant development not only in the consumer finance area, but also may prompt other agencies to attempt to limit the use of class action waivers in arbitration agreements within their jurisdiction.

Dodd-Frank Act

The CFPB’s involvement in regulating the use of arbitration agreements between financial institutions and consumers stems from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). The act required the CFPB to study “the use of agreements providing for arbitration of any future dispute…in connection with the offering or providing of consumer financial products or services.”2 Under Dodd-Frank, the agency “may prohibit or impose conditions or limitations” on the use of pre-dispute agreements between covered entitles and consumers “if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers” and if the rule is “consistent with the study.”3

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