This post first appeared on the Securities Arbitration Alert blog.  The blog’s editor-in-chief is George H. Friedman, Chairman of the Board of Directors for Arbitartion Resolution Services, Inc.

A recent House subcommittee hearing reviewing the performance of the Consumer Financial Protection Bureau (“CFPB” or “Bureau”) among other topics discussed the Bureau’s efforts to create an arbitration clause registry.

Specifically, the House Financial Services Committee Subcommittee on Financial Institutions and Monetary Policy held a March 9 hearingConsumer Financial Protection Bureau: Ripe for Reform. One of the topics discussed was the CFPB’s proposed new rule seeking information from nonbanks on, among other things, arbitration and class action waivers.

Rule on Registry Introduced …

Recall that, as reported in SAA 2023-04 (Jan. 26), the Bureau on January 12 announced via press release that it had filed a rule proposal:

“to establish a public registry of supervised nonbanks’ terms and conditions in ‘take it or leave it’ form contracts that claim to waive or limit consumer rights and protections, like bankruptcy rights, liability amounts, or complaint rights…. Under the proposed rule, nonbanks subject to the CFPB’s supervisory jurisdiction would need to submit information on terms and conditions in form contracts they use that seek to waive or limit individuals’ rights and other legal protections. That information would be posted in a registry that will be open to the public, including to other consumer financial protection enforcers.”

… And Covers Mandatory Arbitration Agreements and Class Action Waivers

Any ambiguity about whether the proposed rule covered mandatory predispute arbitration agreements and class action waivers was resolved in the affirmative. Says the release:

“Under the proposal, the CFPB would seek information on contract terms and conditions seeking to waive any constitutional, statutory, or common law legal protection, right, or defense; restrict the ability of consumers to complain; limit the time or place for consumers to bring legal actions; limit liability amounts; waive class action rights; and impose arbitration provisions. Both company information and information about the use of the terms and conditions would be published” (emphasis added).

Topic of Discussion at Subcommittee Hearing

Among the witnesses at the Subcommittee hearing was William M. Himpler, the CEO of the American Financial Services Association (“AFSA”), who said in his prepared testimony:

“In 2017, the CFPB finalized a rule that would eliminate pre-dispute arbitration agreements. Congress overturned the rule using its authority under the Congressional Review Act (CRA). As Congress has made clear, when a rule is overturned under the CRA, an agency is prohibited from doing anything ‘substantially similar.’[] Despite the prohibition, the CFPB continues to pursue the elimination of arbitration, this time by proposing a nonbank registry where finance companies and others would be required to register certain terms and conditions, such as arbitration agreements and other beneficial agreements with consumers, that the Bureau would post in a public registry. This public registry is an attempt to: (1) shame companies out of using lawful arbitration agreements, and (2) give plaintiffs’ attorneys a roster of companies to sue. As House Financial Services Chairman Patrick McHenry (R-NC) said: ‘This is another attempt by Director Chopra to unilaterally expand the CFPB’s authority beyond Congress’ intent and to mandate what Democrats were unable to legislate. This proposed registry of terms and conditions will facilitate the naming and shaming of firms to empower progressive activists. Requiring nonbank financial firms to register publicly with the Bureau is unprecedented—no other industry is required to make public such detailed contract information’” (footnote omitted).

(ed: *We’re sure there is more to come on this proposal. **Not to be sticklers, but the nullified 2017 rule did not: “eliminate pre-dispute arbitration agreements.” It banned class action waivers. ***The 2.5 hour hearing is recorded in a video.)