Faced with public pressure regarding perceived abuses in pre-dispute arbitration agreements with consumers, the Dodd-Frank financial reforms of July 2010 included two specific measures intended to address those concerns. First, the act prohibited mandatory pre-dispute arbitration clauses in residential mortgages. Second, it required the Consumer Financial Protection Bureau established by the Act (CFPB) to study pre-dispute arbitration agreements in consumer financial documents subject to the bureau’s jurisdiction and, upon completion of the study, to issue regulations restricting or prohibiting the use of such agreements if in the public interest and for the benefit of consumers.
The final rule, issued July 10, appears to be a common-sense compromise: restricting the ability of covered companies to prohibit consumers from participating in class action litigation in court and requiring companies to report on their (permitted) use of individual arbitration in covered transactions. Thus, although the final rule prohibits class action waivers, covered companies may continue to include pre-dispute arbitration clauses in their consumer agreements. However, individual agreements may be regulated in the future if the data justifies such regulation.
