Prohibited by Law and Totally Ineffective—Just Two of the Many Reasons Why the CFPB Should Deny the Petition for Rulemaking on Post-Dispute Consumer Arbitration Agreements

Consumer Finance Monitor

Our special guest is David Sherwyn, Professor of Law at Cornell University's School of Hotel Administration. In Sept. 2023, 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. In response, the CFPB indicated it is carefully considering the petition, and will be opening a public docket and taking comment from the public on the petition.

We first discuss the results of Prof. Sherwyn’s study which concluded, in the context of employment disputes, that while superficially appealing, post-dispute arbitration fails in reality and hurts both businesses and individuals, and explain why these study results are applicable in the context of consumer finance. We then offer compelling reasons why the CFPB should not engage in such a rulemaking, including why the petition is a clear attempt to make an end-run around the CFPB’s prior arbitration rulemaking that would have prohibited class action waivers in consumer arbitration agreements and was overridden by Congress and why the petition is premature. We conclude by responding to arguments made by opponents of pre-dispute arbitration agreements that consumers are uninformed about arbitration and are “forced” to enter into such agreements.

Alan Kaplinsky, Senior Counsel in Ballard Spahr’s Consumer Financial Services Group, leads the discussion, joined by Mark Levin, Senior Counsel in the Group.