CFPB Arbitration Rule

On July 10, 2017, the Consumer Financial Protection Bureau (CFPB) released its final rule (which is set forth below) governing consumer arbitration agreements. The rule makes it easier for consumers to bring class action lawsuits against businesses that are subject to the CFPB’s rule-making authority. The CFPB’s final rule is the result of years of work by the Bureau, which included a prolonged study on how arbitration agreements harm consumers, a report to Congress in 2015, publishing a proposed rule in 2016, and soliciting comments on the proposed new regulations.

The rule will be published as Part 1040 of Title 12 of the Code of Federal Regulations. Companies will be required to comply with the new rule with regard to contracts formed on or after March 19, 2018.

For the purposes of this title:

1. Authority. The regulation in this part is issued by the Bureau of Consumer Financial Protection (Bureau) pursuant to sections 1022(b)(1) and (c) and 1028(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) (12 U.S.C. 5512(b)(1) and (c) and 5518(b)).
2. Purpose.The purposes of this part are the furtherance of the public interest and the protection of consumers regarding the use of agreements for consumer financial products and services providing for arbitration of any future dispute, and also to monitor for risks to consumers in the offering or provision of consumer financial products or services, including developments in markets for such products or services.

1. Class action means a lawsuit in which one or more parties seek or obtain class treatment pursuant to Federal Rule of Civil Procedure 23 or any State process analogous to Federal Rule of Civil Procedure 23.
2. Consumer means an individual or an agent, trustee, or representative acting on behalf of an individual.
3. Pre-dispute arbitration agreement means an agreement between a covered person as defined by 12 U.S.C. 5481(6) and a consumer providing for arbitration of any future dispute concerning a consumer financial product or service covered by § 1040.3(a).
Official Interpretation for § 1040.2(c)
4. Provider means:
1. A person as defined by 12 U.S.C. 5481(19) that engages in an activity covered by § 1040.3(a) to the extent that the person is not excluded under § 1040.3(b); or
2. An affiliate of a provider as defined in paragraph (d)(1) of this section when that affiliate is acting as a service provider to the provider with which the service provider is affiliated consistent with 12 U.S.C. 5481(6)(B).
Official Interpretation for § 1040.2(d)

1. Covered products and services. Except for persons when excluded from coverage pursuant to paragraph (b) of this section, this part applies to the offering or provision of the following products or services when such offering or provision is a consumer financial product or service as defined by 12 U.S.C. 5481(5):
Official Interpretation for § 1040.3(a)
1.  
1. Providing an “extension of credit” that is “consumer credit” when performed by a “creditor” as those terms are defined in Regulation B, 12 CFR 1002.2;
2. “Participat[ing] in [] credit decision[s]” within the meaning of 12 CFR 1002.2(l) when performed by a “creditor” with regard to “consumer credit” as those terms are defined in 12 CFR 1002.2;
3.  
1. Referring applicants or prospective applicants for “consumer credit” to creditors when performed by a “creditor” as those terms are defined in 12 CFR 1002.2; or
2. Selecting or offering to select creditors to whom requests for “consumer credit” may be made when done by a “creditor” as those terms are defined in 12 CFR 1002.2;
3. Except that this paragraph (a)(1)(iii) does not apply when the referral or selection activity by the creditor described in paragraphs (a)(1)(iii)(A) or (B) of this section is incidental to a business activity of that creditor that is not covered by this section;
Official Interpretation for § 1040.3(a)(1)(iii)
4. Acquiring, purchasing, or selling an extension of consumer credit covered by paragraph (a)(1)(i) of this section; or
5. Servicing an extension of consumer credit covered by paragraph (a)(1)(i) of this section;
Official Interpretation for § 1040.3(a)(1)(v)
2. Extending automobile leases as defined by 12 CFR 1090.108 or brokering such leases;
3.  
1. Providing services to assist with debt management or debt settlement, modify the terms of any extension of consumer credit covered by paragraph (a)(1)(i) of this section, or avoid foreclosure;
Official Interpretation for § 1040.3(a)(3)(i)
2. Providing products or services represented to remove derogatory information from, or improve, a person’s credit history, credit record, or credit rating;
Official Interpretation for § 1040.3(a)(3)(ii)
4. Providing directly to a consumer a consumer report, as defined by the Fair Credit Reporting Act, 15 U.S.C. 1681a(d), a credit score, as defined by 15 U.S.C. 1681g(f)(2)(A), or other information specific to a consumer derived from a consumer file, as defined by 15 U.S.C. 1681a(g), in each case except for a consumer report provided solely in connection with an adverse action as defined in 15 U.S.C. 1681a(k) with respect to a product or service that is not covered by this section;
5. Providing accounts subject to the Truth in Savings Act, 12 U.S.C. 4301 et seq., as implemented by 12 CFR part 707 and Regulation DD, 12 CFR part 1030;
6. Providing accounts or remittance transfers subject to the Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., as implemented by Regulation E, 12 CFR part 1005;
7. Transmitting or exchanging funds as defined by 12 U.S.C. 5481(29) except when necessary to another product or service if that product or service:
1. Is offered or provided by the person transmitting or exchanging funds; and
2. Is not covered by this section;
8. Accepting financial or banking data or providing a product or service to accept such data directly from a consumer for the purpose of initiating a payment by a consumer via any payment instrument as defined by 12 U.S.C. 5481(18) or initiating a credit card or charge card transaction for the consumer, except by a person selling or marketing a good or service that is not covered by this section, for which the payment or credit card or charge card transaction is being made;
Official Interpretation for § 1040.3(a)(8)
9. Providing check cashing, check collection, or check guaranty services; or
10. Collecting debt arising from any of the consumer financial products or services described in paragraphs (a)(1) through (9) of this section when performed by:
1. A person offering or providing the product or service giving rise to the debt being collected, an affiliate of such person, or a person acting on behalf of such person or affiliate;
2. A person purchasing or acquiring an extension of consumer credit covered by paragraph (a)(1)(i) of this section, an affiliate of such person, or a person acting on behalf of such person or affiliate; or
3. A debt collector as defined by 15 U.S.C. 1692a(6).
Official Interpretation for § 1040.3(a)(10)
2. Excluded persons. This part does not apply to the following persons in the following circumstances:
Official Interpretation for § 1040.3(a)(b)
1.  
1. A person regulated by the Securities and Exchange Commission as defined by 12 U.S.C. 5481(21); or
2. A person to the extent regulated by a State securities commission as described in 12 U.S.C. 5517(h) as either:
1. A broker dealer; or
2. An investment adviser; or
3. A person regulated by the Commodity Futures Trading Commission as defined by 12 U.S.C. 5481(20) or a person with respect to any account, contract, agreement, or transaction to the extent subject to the jurisdiction of the Commodity Futures Trading Commission under the Commodity Exchange Act, 7 U.S.C. 1 et seq.
2.  
1. A Federal agency as defined in 28 U.S.C. 2671;
2. Any State, Tribe, or other person to the extent such person qualifies as an “arm” of a State or Tribe under Federal sovereign immunity law and the person’s immunities have not been abrogated by the U.S. Congress;
Official Interpretation for § 1040.3(b)(2)(ii)
3. Any person with respect to a product or service described in paragraph (a) of this section that the person and any of its affiliates collectively provide to no more than 25 consumers in the current calendar year and to no more than 25 consumers in the preceding calendar year;
Official Interpretation for § 1040.3(b)(3)
4. A merchant, retailer, or other seller of nonfinancial goods or services to the extent such person:
1. Offers or provides an extension of consumer credit covered by paragraph (a)(1)(i) of this section that is of the type described in 12 U.S.C. 5517(a)(2)(A)(i); and
1. Is not subject to the Bureau’s rulemaking authority under 12 U.S.C. 5517(a)(2)(B); or
2. Is subject to the Bureau’s rulemaking authority only under 12 U.S.C. 5517(a)(2)(B)(i) but not 12 U.S.C. 5517(a)(2)(B)(ii) or (iii); or
2. Purchases or acquires an extension of consumer credit excluded by paragraph (b)(4)(i) of this section.
Official Interpretation for § 1040.3(b)(4)
5. Any “employer” as defined in the Fair Labor Standards Act, 29 U.S.C. 203(d), to the extent it is offering or providing a product or service described in paragraph (a) of this section to its employee as an employee benefit; or
Official Interpretation for § 1040.3(b)(5)
6. A person to the extent providing a product or service in circumstances where they are excluded from the Bureau’s rulemaking authority including pursuant to 12 U.S.C. 5517 or 5519.

1. Use of pre-dispute arbitration agreements in class actions–
Official Interpretation for § 1040.4
1. General rule. A provider shall not rely in any way on a pre-dispute arbitration agreement entered into after the date set forth in § 1040.5(a) with respect to any aspect of a class action that concerns any of the consumer financial products or services covered by § 1040.3, including to seek a stay or dismissal of particular claims or the entire action, unless and until the presiding court has ruled that the case may not proceed as a class action and, if that ruling may be subject to appellate review on an interlocutory basis, the time to seek such review has elapsed or such review has been resolved such that the case cannot proceed as a class action.
Official Interpretation for § 1040.4(a)(1)
2. Provision required in covered pre-dispute arbitration agreements. Upon entering into a pre-dispute arbitration agreement for a consumer financial product or service covered by § 1040.3 after the date set forth in § 1040.5(a):
1. Except as provided elsewhere in this paragraph (a)(2) or in § 1040.5(b), a provider shall ensure that any such pre-dispute arbitration agreement contains the following provision: “We agree that neither we nor anyone else will rely on this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action filed by someone else.”
2. When the pre-dispute arbitration agreement applies to multiple products or services, only some of which are covered by § 1040.3, the provider may include the following alternative provision in place of the one required by paragraph (a)(2)(i) of this section: “We are providing you with more than one product or service, only some of which are covered by the Arbitration Agreements Rule issued by the Consumer Financial Protection Bureau. The following provision applies only to class action claims concerning the products or services covered by that Rule: We agree that neither we nor anyone else will rely on this agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action filed by someone else.”
Official Interpretation for § 1040.4(a)(2)
3. When the pre-dispute arbitration agreement existed previously between other parties and does not contain either the provision required by paragraph (a)(2)(i) of this section or the alternative permitted by paragraph (a)(2)(ii) of this section:
1. The provider shall either ensure the pre-dispute arbitration agreement is amended to contain the provision specified in paragraph (a)(2)(i) or (a)(2)(ii) of this section or provide any consumer to whom the agreement applies with the following written notice: “We agree not to rely on any pre-dispute arbitration agreement to stop you from being part of a class action case in court. You may file a class action in court or you may be a member of a class action filed by someone else.” When the pre-dispute arbitration agreement applies to multiple products or services, only some of which are covered by § 1040.3, the provider may, in this written notice, include the following optional additional language: “This notice applies only to class action claims concerning the products or services covered by the Arbitration Agreements Rule issued by the Consumer Financial Protection Bureau.”
2. The provider shall ensure the pre-dispute arbitration agreement is amended or provide the notice to consumers within 60 days of entering into the pre-dispute arbitration agreement.
Official Interpretation for § 1040.4(a)(2)
4. A provider may add any one or more of the following sentences at the end of the disclosures required by paragraphs (a)(2)(i) and (ii) of this section:
1.  
1. “This provision does not apply to parties that entered into this agreement before March 19, 2018.”
2. “This provision does not apply to products or services first provided to you before March 19, 2018 that are subject to an arbitration agreement entered into before that date.”
2. “This provision does not apply to persons that are excluded from the Consumer
   Financial Protection Bureau’s Arbitration Agreements Rule.”
3. “This provision also applies to the delegation provision.” A provider using this sentence as part of the disclosure required by paragraph (a)(2)(i) or (ii) of this section in a pre-dispute arbitration agreement is not required to separately insert the disclosure required by paragraph (a)(2)(i) or (ii) of this section into a delegation provision that relates to such a pre- dispute arbitration agreement.
Official Interpretation for § 1040.4(a)(2)
5. In any provision or notice required by this paragraph (a)(2), if the provider uses a standard term in the rest of the agreement to describe the provider or the consumer, the provider may use that term instead of the term “we” or “you.”
6. In any provision or notice required by this paragraph (a)(2), if a person has a genuine belief that sovereign immunity from suit under applicable law may apply to any person that may seek to assert the pre-dispute arbitration agreement, then the provision or notice may include, after the sentence reading “You may file a class action in court or you may be a member of a class action filed by someone else,” the following language: “However, the defendants in the class action may claim they cannot be sued due to their sovereign immunity. This provision does not create or waive any such immunity.” In the preceding sentence, the word “notice” may be substituted for the word “provision” when the included language is in a notice.
7. A provider may provide any provision or notice required by this paragraph (a)(2) in a language other than English if the pre-dispute arbitration agreement also is written in that other language.
Official Interpretation for § 1040.4(a)(2)
2. Submission of arbitral and court records. For any pre-dispute arbitration agreement for a consumer financial product or service covered by § 1040.3 entered into after the date set forth in § 1040.5(a), a provider shall comply with the requirements set forth below.
Official Interpretation for § 1040.4(b)
1. Records to be submitted. A provider shall submit a copy of the following records to the Bureau, in the form and manner specified by the Bureau:
1. In connection with any claim filed in arbitration by or against the provider concerning any of the consumer financial products or services covered by § 1040.3:
1. The initial claim and any counterclaim;
2. The answer to any initial claim and/or counterclaim, if any;
3. The pre-dispute arbitration agreement filed with the arbitrator or arbitration administrator;
4. The judgment or award, if any, issued by the arbitrator or arbitration administrator; and
5. If an arbitrator or arbitration administrator refuses to administer or dismisses a claim due to the provider’s failure to pay required filing or administrative fees, any communication the provider receives from the arbitrator or an arbitration administrator related to such a refusal;
Official Interpretation for § 1040.4(b)(1)
2. Any communication the provider receives from an arbitrator or an arbitration administrator related to a determination that a pre-dispute arbitration agreement for a consumer financial product or service covered by § 1040.3 does not comply with the administrator’s fairness principles, rules, or similar requirements, if such a determination occurs; and
3. In connection with any case in court by or against the provider concerning any of the consumer financial products or services covered by § 1040.3:
1. Any submission to a court that relies on a pre-dispute arbitration agreement in support of the provider’s attempt to seek dismissal, deferral, or stay of any aspect of a case; and
2. The pre-dispute arbitration agreement relied upon in the motion or filing.
Official Interpretation for § 1040.4(b)(1)(iii)
2. Deadline for submission. A provider shall submit any record required pursuant to paragraph (b)(1) of this section within 60 days of filing by the provider of any such record with the arbitrator, arbitration administrator, or court, and within 60 days of receipt by the provider of any such record filed or sent by someone other than the provider, such as the arbitration administrator, the court, or the consumer.
3. Redaction. Prior to submission of any records pursuant to paragraph (b)(1) of this section, a provider shall redact the following information:
1. Names of individuals, except for the name of the provider or the arbitrator where either is an individual;
2. Addresses of individuals, excluding city, State, and zip code;
3. Email addresses of individuals;
4. Telephone numbers of individuals;
5. Photographs of individuals;
6. Account numbers;
7. Social Security and tax identification numbers;
8. Driver’s license and other government identification numbers; and
9. Passport numbers.
4. Internet posting of arbitral and court records. The Bureau shall establish and maintain on its publicly available internet site a central repository of the records that providers submit to it pursuant to paragraph (b)(1) of this section, and such records shall be easily accessible and retrievable by the public on its internet site.
5. Further redaction prior to internet posting. Prior to making records identified in paragraph (b)(1) of this section easily accessible and retrievable by the public as required by paragraph (b)(4) of this section, the Bureau shall make such further redactions as are needed to comply with applicable privacy laws.
6. Deadline for internet posting of arbitral and court records. The Bureau shall initially make records submitted to the Bureau by providers under paragraph (b)(1) of this section easily accessible and retrievable by the public on its internet site no later than July 1, 2019. The Bureau will annually make records submitted under paragraph (b)(1) available each year thereafter for documents received by the end of the prior calendar year.

1. Compliance date. Compliance with this part is required for any pre-dispute arbitration agreement entered into on or after March 19, 2018.
Official Interpretation for § 1040.5
2. Exception for pre-packaged general-purpose reloadable prepaid card agreements. Section 1040.4(a)(2) shall not apply to a provider that enters into a pre-dispute arbitration agreement for a general-purpose reloadable prepaid card if the requirements set forth in either paragraphs (b)(1) or (2) of this section are satisfied.
Official Interpretation for § 1040.5(b)
1. For a provider that does not have the ability to contact the consumer in writing:
1. The consumer acquires a general-purpose reloadable prepaid card in person at a retail store;
2. The pre-dispute arbitration agreement was inside of packaging material when the general-purpose reloadable prepaid card was acquired; and
3. The pre-dispute arbitration agreement was packaged prior to the compliance date of the rule.
2. For a provider that has the ability to contact the consumer in writing:
1. The requirements set forth in paragraphs (b)(1)(i) through (iii) of this section are satisfied; and
2. Within 30 days of obtaining the consumer’s contact information, the provider notifies the consumer in writing that the pre-dispute arbitration agreement complies with the requirements of § 1040.4(a)(2) by providing an amended pre-dispute arbitration agreement to the consumer.
Official Interpretation for § 1040.5(b)(2)

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