Like it said it would do, the Consumer Financial Protection Bureau last week issued a final rule that would ban contractual arbitration clauses that prohibit class actions. The rule, if it becomes law, would affect most consumer financial contracts, including some in the real estate industry. Continue Reading CFPB Arbitration Rule Selectively Targets Real Estate Professionals
Recently, some companies have dodged potential class liability by forcing would-be plaintiffs into arbitration. Other businesses have “picked off” class adversaries by paying them individual damages. Can those strategies be successfully combined? Continue Reading Improve Your Arbitration Clause Through Notice-and-Cure Provision
For now, individual arbitration is still a viable option for avoiding at least some class actions. But what do you do when the transaction for the would-be class representative is so old that you no longer have a copy of the arbitration agreement? A recent decision from a federal appellate court gives businesses guidance about proving the existence of now-discarded arbitration contracts. Continue Reading Go Extra Mile to Prove Old, Lost Arbitration Agreements
As promised, the Consumer Financial Protection Bureau (CFPB) last week proposed a rule that would bar most lenders from using arbitration clauses as a means to block class actions. These “contract gotchas” supposedly deny consumers “the right to seek justice and relief for wrongdoing.” Class-action attorneys, who stand to gain millions of dollars in legal fees, could not agree more. Continue Reading CFPB Takes Its Anti-Arbitration Onslaught to Next Phase
One of the more successful strategies when defending against class actions is to force the plaintiff out of court and into arbitration. That typically stops the case from including more individuals. But courts are often willing to nullify arbitration agreements based on technicalities. Continue Reading Arbitration Clauses Are Still No Sure Weapon Against Class Actions
The Supreme Court continues to have a lot to say about class-action jurisprudence. On December 14, 2015, the Supreme Court offered another missive on class-arbitration waivers and affirmed its support of the Federal Arbitration Act (FAA). Though the decision concerned waivers appearing in a consumer contract for satellite services, DirecTV, Inc. v. Imburgia offers insight to anyone seeking to enforce a consumer contract containing a class-arbitration waiver. Continue Reading SCOTUS: Yes, California, There is Pre-Emption
Last week, the New York Times ran a series of three front-page articles blasting the recent trend of various industries to put arbitration clauses, some with class-action waivers, in consumer contracts. Anyone looking for a balanced view of arbitration should look elsewhere. A flurry of critics—from bloggers, to law professors, to Forbes magazine, to the U.S. Chamber of Commerce—quickly and properly hammered the Times for its remarkably slanted approach. Continue Reading NYT Attack on Arbitration Stirs Controversy
On October 7, 2015, the Consumer Financial Protection Bureau (“CFPB”) issued a press release indicating that they were going to move forward with a proposal to ban arbitration clauses. In prepared remarks, the CFPB Director Richard Cordray took aim at what he termed “a mandatory pre-dispute arbitration clause” that he described as “buried deeply in the fine print of many contracts for consumer financial products and services, such as credit cards and bank accounts.” According to Director Cordray, the arbitration clauses are being used as a “free pass to sidestep the courts and avoid accountability for wrongdoing.” Director Cordray indicated that even allowing a consumer to opt-out of the arbitration clause was insufficient because consumers don’t understand the significance of the clause or the potential opt-out. Continue Reading CFPB Proposal Seeks to Eviscerate the Class-Action Restriction in Arbitration Clauses
For people looking to sue businesses in class actions, California has long been the preferred venue of choice. It is believed, rightly or wrongly, that courts and laws in the Golden State strongly favor consumers. A recent decision from the California Supreme Court, involving class-action waivers, throws that conventional wisdom into doubt, suggesting a less plaintiff-friendly outlook for the state.
On their face, the holdings in the case, Sanchez v. Valencia Holding Company,seem unremarkable. In 2010, Gil Sanchez bought a used Mercedes-Benz from Valencia. The sales agreement contained a provision requiring arbitration of disputes, and the contract also stipulated that Sanchez waived his right to seek class-action relief. In tandem, those clauses—if enforced—would completely insulate the dealership from potential class liability.
In 2011, the U.S. Supreme Court held in AT&T Mobility v. Concepcion that a mandatory arbitration clause included in a cell phone contract effectively eliminated a consumer’s opportunity to seek redress through a class-action lawsuit. On July 15, 2015, Consumer Financial Protection Bureau (“CFPB”) Director Richard Cordray testified before the Senate Banking Committee and indicated that the CFPB—the same entity that has enforcement authority for certain laws that affect the real-estate industry, including TILA, RESPA, and HOEPA—will convene a small business review panel in part to decide what action to take regarding arbitration clauses in financial services agreements.
This testimony comes on the heels of a March 2015 study that found that consumers do not understand the arbitration clauses that are found in their financial services agreements—such as credit cards, checking accounts, payday loans, prepaid loans, private student loans, and mobile wireless contracts. In consumer contracts, arbitration clauses often limit a consumer’s ability to participate in or bring a class-action lawsuit. The CFPB has determined that mandatory arbitration is not in consumers’ best interests and now appears poised to enact rules affecting a company’s ability to include an arbitration clause in a consumer financial contract.