CFPB opposes arbitration, favors lawsuits, class actions

CFPB opposes arbitration, favors lawsuits, class actions

The Consumer Financial Protection Bureau issued a report in March, required by the Dodd-Frank Act, on how the use of pre-dispute arbitration agreements affects consumers. Although the report showed benefits of arbitration, the CFPB afterward came out against arbitration agreements, comparing them unfavorably with lawsuits and class action suits.

The CFPB did a five-year study that found that consumers who filed class action suits recovered at least $220 million per year in settlement funds, though the study did not break down the amount each member in the class received. Lenders are much more likely to invoke the arbitration clause to stop class action lawsuits than individual lawsuits, the study found.

But the CFPB discovered that arbitration is much faster and less expensive for consumers 3 to 5 months versus nearly 2 years, and a cap of $200 for arbitration filing versus $400 to file suit.

Although the CFPB regulates lenders and not dealers, the effects of the CFPBês actions have already been felt by dealers. Dealers would be wise to set up –a process to resolve customer disputes under a formal in-house program,” says Randy Henrick, lead compliance counsel for DealerTrack Technologies. The customer should be able to discuss his complaint with a dealership officer not involved with the matter.

The CFPB will likely write regulations restricting arbitration clauses, Henrick says. Any proposed regulations will be subject to public comment, which would be reviewed and analyzed by the CFPB before it writes final regulations, which would likely take effect in late 2016 or early 2017.

Thanks to Randy Henrick for the information in this report. A longer version was originally published in the NADC (National Association of Dealer Counsel) Defender. This article is not intended as legal advice. Consult your attorney about your individual situation.