Page 2 - Arbitration

S2 | MONDAY, JULY 18, 2016 | Arbitration
| NYLJ.COM

Supreme Court Giveth
What the , opinion issued in December 2015 seemingly

closed the door on the debate over class
action waivers and arbitration provisions
CFPB Taketh in consumer contracts.
The Away
The CFPB had other ideas.

CFPB Study and Proposed Regulation

The CFPB was created in 2010 by the Dodd-
Frank Wall Street Reform and Consumer Pro-

tection Act (Dodd-Frank). Part of the CFPB’s BY LEWIS WIENER,
edict, as set forth in §1028 of Dodd-Frank, KYMBERLY KOCHIS
was to study “the use of agreements provid- AND FRANK NOLAN
ing for arbitration of any future dispute . O
in connection with the offering or providing n May 5, 2016, the Consumer Financial
of consumer inancial products or services.” Protection Bureau (CFPB) released its
Congress also gave the CFPB the power to much-anticipated and highly contro-
regulate arbitration agreements, provided versial proposed regulation on restricting

that “the indings in each rule shall be con- the use of class action waivers and arbitra-
sistent with the study conducted.” The CFPB tion provisions in consumer contracts. The
published its study in March 2015.
CFPB’s proposal, if effectuated, would essen-
The CFPB concluded that companies tially overturn years of U.S. Supreme Court
employ mandatory arbitration clauses to precedent by prohibiting the use of class
prevent consumers from challenging “prob- action waivers in the majority of consumer
lematic practices” through the “more effective contracts. This article will summarize the
means” of class action litigation. In reaching Supreme Court’s jurisprudence, explain the
this conclusion, the CFPB relied on survey CFPB’s proposal and its legal basis, and out-

results showing that 75 percent of credit card line steps companies can take to address the
customers did not know they were subject to regulation before and after it goes into effect.
an arbitration clause. In addition, the CFPB
determined that at least 160 million consum- Supreme Court’s Approval of Arbitration
ers were “eligible” to collect a portion of total Provisions and Class Action Waivers
class action settlements totaling $2.7 billion
over the previous ive years. The CFPB also
determined that individual dispute resolution Over the last decade, the U.S. Supreme
is insuficient as the sole mechanism avail- Court has issued a series of opinions embrac-

able to consumers to enforce contracts. It ing the use of arbitration provisions and
also found that public enforcement does not class action waivers in consumer contracts.
obviate the need for a private class action Perhaps the most well-known case is AT&T
mechanism. The study did not analyze Mobility v. Concepcion (2011), where the court
whether individual arbitration is superior considered AT&T’s contract provision that
(or inferior) to individual litigation.
included a class action waiver and required
For better or worse, the CFPB’s proposed consumers to arbitrate all disputes. California
regulation is “consistent with” the study’s state courts had rejected AT&T’s attempts to

indings. The stated purposes of the proposed enforce individual arbitration, relying on a
regulation are to: (1) allow consumers to bring state law known as the “Discover Bank Rule”
and participate in class actions; (2) deter com- that allowed courts to strike “unconscio-
panies from engaging in unlawful practices; nable” arbitration provisions. The Supreme K
and (3) increase transparency in arbitration, Court overturned the state courts’ decisions TOC
to the beneit of consumers.
and mooted the Discover Bank Rule. It held IS
The proposed regulation has two “prongs.” that the Federal Arbitration Act (FAA), which
The first prong would require covered strongly favors the enforcement of arbitration Two years later, the Supreme Court the notion that consumers have a constitu-
entities (deined below) to include in their provisions, preempted state law. Accordingly, strengthened its Concepcion ruling in Ameri- tional right to bring or participate in a class

consumer contracts a provision expressly the parties were bound by the single-arbitra- can Express v. Italian Colors Restaurant. In action.
stating that companies cannot “use this tion contract provision, and the plaintiff was overturning a decision by the U.S. Court of Most recently, in DirecTV v. Imburgia, the
agreement to stop you from being part of a precluded from bringing or participating in Appeals for the Second Circuit to strike the court reinforced its holding in Concepcion
class action case in court.” Only when a class a class action.
arbitration provision and class action waiver and ruled that the parties that had agreed
action is not being litigated, or has already provision as unconscionable, the Supreme to an arbitration provision and class action
concluded, would arbitration be required. In Court held that courts must “rigorously waiver were bound by it under the principles
other words, arbitration cannot be required LEWIS WIENER and KYMBERLY KOCHIS are partners at enforce arbitration agreements according of contract law. The court held that the FAA
in lieu of class action litigation. The second Sutherland Asbill & Brennan in the Washington, D.C. to their terms,” even if the projected cost of preempted state law, even when the parties
prong would eliminate arbitration coniden- and New York oices, respectively. is arbitration exceeded the plaintiff’s potential contracted to be bound by the law of a state
FRANK NOLAN
tiality and require companies » Page S7
an associate in the New York oice.
recovery. In so inding, the court dismissed
that prohibits class waivers. The 6-3 DirecTV

Inside
Arbitration

S
S
S4 A Common Right to Arbitrate: S6 Nuts and Bolts
Anti-Suit Injunctions
Of a Successful Arbitration Walter J. Storey, Executive Editor
Angela Turturro, Sections Editor
In New York and England
BY HOWARD J. KAPLAN
Agnieszka Czuj, Design
SS
BY CHRISTOPHER RYAN,

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