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CFPB seeking comment on arbitration clause rules

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CFPB seeking comment on arbitration clause rules

The Consumer Financial Protection Bureau is seeking commentson proposed rulesthat would prohibit financial institutions from including mandatory arbitrationclauses in contracts unless they include a provision that would allow consumersto file class action lawsuits.

In addition, the agency is seeking comment on provisionsthat would require companies with arbitration clauses to submit to bureau anyclaims, awards, or related materials that are filed in arbitration cases."This would allow the Bureau to monitor consumer finance arbitrations toensure that the arbitration process is fair to consumers," a May 5 pressrelease stated.

The notice of proposed rulemaking stated that submittedinformation would be used to see if there are any concerns that warrant furtheraction. Also, the CFPB plans to publish the materials it receives "on itswebsite in some form, with appropriate redactions or aggregation as warranted."

According to the notice, the regulations would apply to abroad range of companies "in the core consumer financial markets oflending money, storing money, and moving or exchanging money," includingauto loan brokers, check-cashing services, consumer credit reporting servicesand debt-collection agencies.

According to a March 2015 studyfrom the CFPB, most consumers do not sue their financial service providers onan individual basis either in court or arbitration. However, it also found that the average class action outcome was $32.35per consumer, compared to an average arbitration outcome of $5,389.

Many industry groups and companies arguethat the study does not support the need for restrictions to the use ofarbitration clauses. TheConsumer Bankers Association on May 5 issued a pair of fact sheets denouncingthe rulemaking and calling arbitration "a cost-effective alternative tolitigation."

"[T]he proposal issued today promotes the use of classactions, despite the Bureau's study showing 60% of class action suits producedno benefits for those qualifying as class members," the Consumer BankersAssociation stated in one fact sheet.

A Dec. 11, 2015 Small Business Review panel of the proposedrules recommended the bureau seek comment on how small business could beaffected, including potential increased costs, the differences in compliancepractices between small and large entities, and whether small business shouldbe exempt from the requirements.

The CFPB is holding a field hearing on the contract clauseson May 5 in Albuquerque, N.M.