We have previously reported on the Consumer Financial Protection Bureau’s (“CFPB”) study of predispute arbitration agreements (“PDAA”) and consumer financial products and services (see, e.g., SAA 2013-16).To review, Dodd-Frank section 1414 bans outright PDAAs in residential mortgage contracts, and section 1028 directs the CFPB to study the use of PDAAs in consumer financial products and services and later report to Congress, and vests authority in CFPB to possibly develop regulations banning their use. As reported in SAA 2013-47, the CFPB in December issued its report on the first phase of its study of arbitration (ed: Because this document is long, please allow extra time for download). This, to be sure, was not the final study and report to Congress required by Dodd-Frank. Now comes word, reported by the CFPB blog at Philadelphia law firm, Ballard Spahr LLP, that the CFPB plans to wrap up this project by the end of 2014. Writing in his blog, Ballard Spahr partner Alan Kaplinsky reports that Will Wade-Gery, the individual at CFPB who is managing the arbitration study, said at the PLI’s 19th Annual Consumer Financial Services Institute in Chicago in late April that CFPB will focus on: “(1) back-end outcomes of consumer financial services lawsuits in court (including class actions) and arbitrations; (2) transaction costs and consumer benefits of class actions; (3) impact on prices for goods and services of class actions and arbitrations; and (4) the relationship between private and public enforcement of consumer financial services laws.” CFPB held hearings in Dallas on the use of pre-dispute arbitration agreements and CFPB Director Richard Cordray has been far more aggressive and vocal about its mission on this front under Dodd-Frank than has been the SEC (see, SAAs 2013-16; 2013-47; 2014-02). It also seems as though consumer groups opposed to the use of pre-dispute arbitration agreements sense a better opportunity for passage of some anti-arbitration regulations than they might believe possible on the securities side (see. e.g., SAA 2014-09). It is true that the banking side has, especially in the credit card sector, a more questionable history of ostensibly using the clause as an offensive tool; there has not been regulation in the use of PDAAs before, unlike in the securities arbitration sector; and the commitment to arbitration as a dispute resolution alternative has been far spottier on the banking side. Among other differences, the use of arbitration with respect to clients on the banking or “financial services” side has been more offensive than defensive. All of these factors separate and distinguish the two arbitration sectors from one another, but, in our view, the parallel powers that Congress has given to the SEC and the CFPB create an environment in which what one does will be carefully watched by the other.
(ed: *Stating the obvious, first things first. The final report is the linchpin for further action; without it, CFPB cannot act. **As we opined in SAA 2013-47, we think the CFPB intends to steer clear of regs governing the use of PDAAs in customer-broker contracts, leaving that to the SEC, as Dodd-Frank seems to contemplate. Nonetheless, it may be including securities class actions in its analyses, as (we think) they are far more plentiful than any other kind of financial services litigation AND there's ready information out there. Might CFPB team with the SEC on this aspect of the Study? That would be a sign that the SEC is serious about at least fact-gathering under Dodd-Frank section 921. ***That CFPB-SEC team could save themselves some time. Mayer Brown has already done the legwork on this, with a Study that led the Wall Street Journal to dub class actions “The Lawyer Protection Act.” Both are a good read! One tidbit: in two-thirds of the class actions surveyed, class members saw no recovery! ) (SAC Ref. No. 2014-18-02)