CFPB rulemaking permits dealers to offer consumers class action waivers, but lenders are prohibited

CFPB rulemaking permits dealers to offer consumers class action waivers, but lenders are prohibited

When the Consumer Financial Protection Bureau (CFPB) issued the final version of its rule banning class action waivers in arbitration agreements, it had some good news for dealers with a catch.

The good news: The final rule provides that dealers are permitted to ask consumers, as part of pre-dispute arbitration agreements, to waive their right to participate in a class action lawsuit. That is a change from the proposed rule issued in May 2016.

In fact, dealers are specifically mentioned in the language that lenders must use. Finance and lease sources under CFPB jurisdiction (as most are) must use a disclosure telling consumers who are subject to pre-dispute arbitration provisions that they have a right to participate in class action lawsuits. But the disclosure must also include language saying that this right does not apply to motor vehicle dealers exempt from CFPB jurisdiction (i.e. franchised new-car dealers).

So whatês the catch? The final rule does not solve another problem for dealers, namely, the indirect liability they face as a result of the master agreements they sign with finance and lease sources. Based on those agreements, dealers can still be held liable to indemnify finance and lease companies for alleged dealer wrongdoing leading to the class actions that consumers bring against financial institutions. So the rule leaves dealers open to indirect liability and indemnification of the financial institutions for consumer class action suits.

Even though the rulemaking is CFPBês final version, more needs to happen. It wonêt become final for 60 days after it is published in the Federal Register, and it wonêt apply to contracts for another 180 days after that. The Republicans who control Congress are not supportive of the CFPB and may override by majority vote any final rule within 60 legislative days after it receives notice of the rule. If Congress nullifies the rule, the CFPB would be precluded from issuing a similar rule in the future.

NADA, in conjunction with a U.S. dealer association task force through Automotive Trade Associations (ATAE), is continuing to monitor the CFPB, including the rulemaking, with the same diligence that their concerted efforts utilized in getting dealers exempted from the Dodd-Frank Act that created CFPB under Finance Reform. Click here for a synopsis of the CFPB rulemaking from ATAE that WANADA published earlier in the week with a Special Bulletin on the matter.

WANADA is grateful to its government relations advisor, Mike Charapp, Esq., Charapp & Weiss, for his analysis of the CFPB rulemaking, along with Tom Dart of the Automobile Dealers Association of Alabama, who chairs the ATAE CFPB Taskforce

WANADA will keep members informed of further developments in the current CFPB rulemaking.

Download Bulletin PDF