While not in the employment field, the latest attack on arbitration as a sensible, fair and comparatively inexpensive and fast dispute resolution mechanism comes from the federal government. Until now, the federal level has been a primary supporter of arbitration, through the Federal Arbitration Act, which protects arbitration clauses in contracts affecting commerce from interference by states and local governments, and policies of agencies. Now, the Consumer Finance Protection Bureau has taken a provocative step hostile to the institution of arbitration. On Monday, July 10, it issued a Final Rule prohibiting banks and other financial institutions under the jurisdiction of the CFPB from using contracts that require individuals with disputes to arbitrate those disputes individually.

In addition, the Rule would require financial institutions to provide broad information about the number of arbitration cases filed, and the outcomes.

Characterizing arbitration provisions as “Contract Gotcha’s”, the CFPB relied upon a controversial study completed in 2015. The study reviewed available records of class actions, small claims actions and arbitration cases in 2010—2012, plus a survey. Many cases covered in the survey’s time period were not completed by the cut-off date, so their results were not included. There are substantial disagreements over the validity of the study and the “lessons” from the data it assembled. The CFPB, however, believes the study supports its conclusion that individual arbitration is unfair and abusive to consumers.

The CFPB’s effort to prevent financial institutions from prohibiting court-based class actions by consumers instead of arbitration is likely to draw a response from Congress. Employer and business groups have already urged Congress to begin the process of using the Congressional Review Act to overturn the Rule. The CRA process, if successful, would not only void this rule, but would also prevent the agency from issuing a similar rule in the future without authorization. In addition, the CFPB is currently subject to scrutiny from Congress and the Trump Administration due to its possibly unconstitutional independence from Congressional or Presidential oversight. See the Trump Administration’s Brief asserting unconstitutionality here. This new rulemaking effort may well result in a response from the Administration consisting of an attempt to remove the head of the CFPB, Richard Cordray (who is rumored to be considering a run for the office of Governor of Ohio in 2018 as a Democrat).

The new Rule from the CFPB may represent the first of many efforts to roll back the ability of businesses to manage their dispute resolution processes through arbitration, among other tools. It could, on the other hand, represent a last gasp of those who prefer the current system of class action litigation, where businesses and lawyers resolve cases with consumers receiving little or no real relief. https://cei.org/issues/class-action-fairness

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Photo of Keith A. Ashmus Keith A. Ashmus

Designated Best Lawyers’ “2016 Lawyer of the Year” in Labor Law-Management in Cleveland and named to the Top 100 Ohio Super Lawyers, Keith is nationally recognized as a respected neutral. His practice focuses on employment law and business law, as well as mediation and arbitration cases around the nation. Keith is a Past President of the Ohio State Bar Association and a Past Chairman of both the Labor Law Section and the ADR Committee of the Cleveland Metropolitan Bar Association.