In a move that the financial industry long anticipated but nonetheless greeted with loud groans, the Consumer Financial Protection Bureau (“CFPB”) on October 7, 2015 proposed to ban class action waivers in contracts for consumer financial products and services. Although the proposed ban would not take effect for a few years, it would have a significant impact on banks and nonbank lenders because it is expected to lead to a major increase in class action litigation. Since class action waivers and arbitration clauses have historically gone hand-in-hand in consumer agreements, these provisions have helped stem the tide of class actions in recent years. According to the CFPB, more than half of credit card contracts and 44 percent of checking account agreements contain arbitration clauses, and these provisions are common in auto finance contracts as well.

The CFPB’s announcement came in the form of a 34-page “outline of proposals”1 that must be reviewed by a Small Business Review Panel before the CFPB can begin formal rulemaking. The CFPB discussed its proposals at a field hearing in Denver, where CFPB Director Richard Cordray criticized class action waivers as a “free pass that prevents consumers from holding their financial providers directly accountable for the harm they cause when they violate the law.”2 Industry representatives argued that the proposed class action waiver ban would be harmful because it would encourage frivolous lawsuits. They also argued that it was unnecessary because most consumers are able to resolve their disputes through customer service inquiries or complaint mechanisms operated by the CFPB and the state attorneys general.

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