On May 5, 2016, the Consumer Financial Protection Bureau (the "CFPB" or the "Bureau") issued a long anticipated Notice of Proposed Rulemaking for arbitration agreements (the "Proposal") that, if finalized as proposed, is expected to result in the curtailment of pre-dispute arbitrations arising from the sale of consumer financial products and services.
The Proposal has two main components:
1. Prohibitions on pre-dispute arbitration agreements ("PDAAs") that bar consumers from filing or participating in class action lawsuits; and
2. Requirements that entities involved in arbitration proceedings pursuant to a PDAA submit certain arbitral records (such as arbitral claims and awards) to the CFPB.
The Proposal would apply broadly to most consumer financial products and services and, in turn, affect the vast majority of consumer financial services companies. As discussed below, it is likely that any final rule would not take effect until the second quarter of 2017, at the earliest.
Given its broad scope and impact, industry will likely continue to participate in the comment process and consider legal challenges to the final rule if it mirrors the Proposal. Further background on the Proposal, a discussion of its key terms, high-level thoughts on potential legal challenges to the rule and what impacted entities should consider are detailed in this alert.
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