CFPB Issues Rule to Limit Use of Class-Action Waivers

The Consumer Financial Protection Bureau (CFPB) has issued its anticipated final rule limiting the use of class-action waivers in arbitration agreements in certain consumer financial transactions.  In a 775-page statement, the CFPB set forth the rule and its reasons for doing so.

The final rule, which goes into effect 241 days after official publication in the Federal Register (probably late  March,  2018), prohibits financial service providers from including class-action waivers in arbitration agreements entered into after the effective date.  The rule does not, however, limit the creditor's ability to require a mandatory arbitration agreement that would force a customer to arbitrate individual claims.
The rule is very close to the proposed rule that was published in May of last year.  Over 110,000 comments to the proposed rule were submitted during the 90-day comment period, including comments from groups representing franchised and independent dealers.

TIADA first recommended the use of arbitration agreements to its members almost 20 years ago.  In a 1998 article in Texas Dealer, I recommended consideration of the use of arbitration agreements as a way of avoiding expensive and time-consuming litigation and pointed out that an arbitration agreement form was available from Burrell Printing.  There were no dealer management software packages back then, so pre-printed forms were either filled out by hand, or run through a dot-matrix printer. 
Although acceptance by dealers was slow at first, interest picked up in 2002 when a class-action suit was brought against over 300 buy-here-pay-here dealers in Texas.  Those dealers who had arbitration agreements in their files were immediately dismissed from the suit by the plaintiffs' attorneys.
Now, almost all dealers use them and all dealer management software packages include arbitration agreements for downloading.
It was inevitable that such an effective tool would come under attack by consumer advocates. Many experts thought that the use of arbitration agreements in consumer transactions might be totally eliminated by the CFPB.  But even with the ban on class-action waivers, an arbitration agreement still offers dealers an opportunity to avoid expensive litigation.

In the coming weeks, TIADA will continue to update members on this issue and how it might affect dealers in Texas. 

LINK: CFPB Issues Rule Limiting Use of Class-Action Waivers in Arbitration Agreements.


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