The Director of the Consumer Financial Protection Bureau (“CFPB”), Rohit Chopra, while attending an event organized by the Public Citizen (a group that opposes mandatory arbitration clauses in consumer agreements), indicated that the CFPB is unlikely to issue a new rule regulating such clauses because the Congressional Review Act prevents it from issuing “a substantially similar rule.”
As readers may recall, in 2017 the CFPB issued a final rule which would have permitted mandatory arbitration agreements in consumer transactions but largely ban class action waivers in such agreements. Congress then used the Congressional Review Act to nullify the CFPB’s final rule. The 2017 class-action waiver prohibition was strenuously opposed by the financial industry, but the invalidating statutory act passed only with a tie-breaking vote from then Vice President Mike Pence.
Director Chopra’s comments were made in response to a question about whether the CFPB would seek to prevent the inclusion of arbitration agreements that require consumers to arbitrate disputes, instead of bringing suits against banks and other financial institutions in court. Before the event, on September 13, 2022, the Public Citizen and more than 100 other organizations purporting to “represent millions of consumers” co-signed a letter to the Director calling on the CFPB “to limit the use of forced arbitration requirements utilized by banks and financial institutions to strip Americans of their right to seek justice after being victimized by banking abuses or fraud.” The letter claimed that the CFPB’s 2015 study of mandatory arbitration clauses revealed “that forced arbitration produced vastly more favorable results for corporations rather than consumers.”
The letter failed to recognize that the same 2015 study also contained data indicating that consumers do better in arbitration than in class actions because, on average, consumers who underwent arbitration recovered more money and within a shorter period of time than consumers in class actions.
Despite recognizing the CFPB’s limitations with respect to the 2017 class-action waiver rule, Director Chopra did not back down from the possibility of regulating contract clauses. He indicated that the CFPB was focusing on larger companies that he characterized as “repeat offenders” and looking at non-monetary “structural remedies.” On other occasions, Chopra has mentioned limitations on growth of companies, disqualification from certain activities, revocation of government-granted privileges, or the limitation or closing of business lines as a means of deterring legal violations where, he argues, companies merely accept civil penalties as the cost of doing business. Those remedies are highly controversial.
Chopra’s comments suggest that one structural remedy the CFPB may pursue would be to require repeat offenders, in future consent orders, that they agree not to include class action waiver provisions in their consumer arbitration agreements. To do so would be a clear shot across the bow at industry and Congressional Republicans, and potentially could cause significant disruption given that entities with multiple consent orders in place already have substantial or even dominant market share. Nonetheless, Chopra ended his comments stating the CFPB had “no specific plans as of now,” suggesting such a proviso has not been proposed in any ongoing settlement negotiations and, at least for now, the idea may be more bark than bite.