CFPB Reacts Quickly and Favorably to Petition Submitted to it by Consumer Groups to Ban Pre-dispute Arbitration

Last week, a group of consumer advocate organizations filed a Petition for Rulemaking with the CFPB that would prohibit the use of pre-dispute arbitration clauses in consumer contracts in favor of arbitration clauses that would permit consumers to choose between arbitration and litigation only after a dispute has arisen. We published a blog last Friday in which we enumerated the many flaws in the Petition and urged the CFPB to reject it.

After we published our blog, Evan Weinberger of Bloomberg received the following response from the CFPB in response to Evan’s request for comments on the filing of the Petition:

"Americans are overwhelmed by increasingly lengthy, complex, and one-sided fine print in form contracts. The CFPB is focused on companies that use fine print to extract extra money, lock people into unwanted business relationships, gain advantages they could not obtain in fair and competitive markets, or circumvent the rule of law. For example, in January the CFPB proposed to create a public registry of nonbank financial companies that purport to limit consumer rights or protections in form contracts, including arbitration clauses.

We welcome participation in our rulemaking petition program, on the part of the consumer groups who filed this petition or any other members of the public. We are carefully considering the proposal relating to arbitration clauses, and will be opening a public docket and taking comment from the public on the proposal."

This is an alarming and rapid reaction by the CFPB. We would have expected a much shorter reaction to the filing of the Petition, something like “We will take the filing of the Petition into consideration and respond to you in due course.” Instead, it almost looks like the CFPB invited these consumer advocacy groups to submit the Petition. At a minimum, it certainly appears as if the groups have been discussing this with the CFPB for some period of time

At this point, we don’t know when the Petition will be published in the Federal Register or what the deadline for submitting comments to the CFPB will be.

While simply re-publishing the Petition will not create a lot of work for the CFPB, it will create a large volume of work for their staff to read and analyze the comments and then decide whether to launch a rulemaking. It seems to us that before publishing an Advance Notice of Proposed Rulemaking or Proposed Regulation, the CFPB would need to do a new study since the prior study (which took three years from launch date until publication) concluded that pre-dispute arbitration provisions are fair to consumers. While we believe that the Petition is precluded by the Congressional Review Act, if the CFPB were to rely on the results of the prior study, it would come close to conceding that the Petition is substantially the same as the former arbitration regulation promulgated by the CFPB and then overruled by Congress under the Congressional Review Act.

As we also pointed out in our earlier blog about the Petition, it seems irresponsible for the CFPB to devote significant resources to this Petition until the Supreme Court issues its opinion in the CFSA case and reverses the Fifth Circuit opinion. There are storm clouds hanging over the Bureau and this is NOT the time for it to launch a new rulemaking (particularly a major one involving arbitration) which is likely to be very contentious and controversial as this one will be.