The CFPB's Study on Arbitration Clauses: The First Step to Unraveling Concepcion in Consumer Transactions?
Nearly one year to the day after the United States Supreme Court's ruling in AT&T Mobility LLC v. Concepcion, 563 U.S. ___ (2011), the Consumer Financial Protection Bureau ("CFPB" or "Bureau") made its first public steps in a process that may ultimately lead to a legislative or regulatory "veto" of that opinion. The CFPB issued a Notice and Request for Information (the "Request") seeking public comment on mandatory arbitration clauses—the type at the center of Concepcion. The CFPB's Request is part of a study on arbitration clauses required by Dodd-Frank. Comments must be submitted before June 23, 2012.
Concepcion cleared the way for broad class arbitration waivers in all types of agreements, including consumer finance contracts. But, as noted in the April 2011 Jones Day Commentary, "Does Dodd-Frank Provide the Seeds to Unravel Concepcion in Consumer Transactions?" the long-term effect of Concepcion depends on the outcome of the CFPB's mandated review of arbitration clauses. Dodd-Frank requires the CFPB to conduct a study on mandatory arbitration clauses for consumer financial products and services and present its findings to Congress. Apart from any potential congressional action, Dodd-Frank also gives the CFPB the authority to prohibit or limit the use of arbitration clauses through its rulemaking powers. The study, however, remains necessary because Dodd-Frank requires that any Bureau rule on arbitration clauses be "consistent with the study."
The Request seeks public comment to help the CFPB "identify the appropriate scope, method, and sources of data" for the study. The CFPB seeks answers to several specific questions that essentially fall into three areas: (1) the prevalence of arbitration clauses, (2) the types of arbitration claims brought by consumers or financial service companies, and (3) the impact of arbitration clauses. The Bureau's primary focus is on the third category. It wants to know if consumers understand that predispute arbitration agreements waive the ability to file a traditional lawsuit. Additionally, as part of its "impact" analysis, the CFPB requests comment on the effectiveness and fairness of the arbitration forum in both access (e.g., cost to the consumer) and procedure (e.g., protection of consumers during the arbitration process).
Absent from the CFPB's request, however, is an explicit call for comment on waivers of class arbitration—the type of provision at issue in Concepcion. The Bureau requests responses on whether it should "focus on the prevalence of particular terms" but does not pinpoint class waivers as a potential term for review. Likely anticipating responses to overturn or preserve the Supreme Court's holding in Concepcion, the CFPB explicitly stated that it is not seeking comment on whether (or how) it should utilize its ability to regulate arbitration clauses.
The Request is just one piece of a broader study on arbitration clauses. Although the parameters of the study are undisclosed, it will likely include empirical data such as the percentage of consumer finance contracts requiring arbitration divided into product lines. Additionally, the Bureau will likely seek information on the outcomes of consumer arbitrations. This presents a question on how the Bureau will obtain this kind of data since arbitrations are typically subject to confidentiality agreements. It remains to be seen whether the CFPB will request information directly from supervised entities.
The CFPB is required to publish its results to Congress. However, given the political discord surrounding the contours of CFPB authority—and any changes to the legislative bodies after the November elections—it is difficult to predict how the CFPB's results will be considered by Congress. Recent attempts to resurrect the proposed Arbitration Fairness Act, which would severely limit the use of arbitration clauses, have failed to gain significant traction. Thus, any limitation on arbitration clauses will likely come from the CFPB.
Jones Day's Consumer Financial Products and Services team advises clients on the use and content of arbitration clauses in their agreements for consumer financial products and services.
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