Stay up to date on everything mediation!

Subscribe to our free newsletter,
"This Week in Mediation"

Sign Up Now

Already subscribed No subscription today
<xTITLE>CFPB Consumer Financial Taskforce Issues Report: Hardly a Word About Arbitration</xTITLE>

CFPB Consumer Financial Taskforce Issues Report: Hardly a Word About Arbitration

by George Friedman
January 2021 George Friedman

This article first appeared on the Securities Arbitration Alert (SAA) blog, here.

A CFPB taskforce on consumer financial law issued a massive report in early January, with hardly a reference to arbitration.

The Consumer Financial Protection Bureau’s (“CFPB”) Taskforce on Federal Consumer Financial Law has issued a 900+ page report containing several findings and recommendationsnone of which pertain to arbitration. The two-volume Taskforce on Federal Consumer Financial Law Report (Volume I is here; Volume II here) was announced in a January 5 Press Release.

Past CFPB Efforts to Regulate Consumer Financial Arbitration

The CFPB under the Obama administration aggressively exercised its authority under Dodd-Frank to restrict, eliminate, or set conditions on the use of predispute arbitration agreements (“PDAA”) in consumer financial products and transactions. This was embodied in a 2017 regulation that would have: 1) permitted predispute arbitration agreements in contracts for consumer financial goods and services; 2) banned class action waivers in PDAAs; and 3) required regulated financial institutions to file customer claims and awards data with the CFPB, which the Bureau intended to publish in redacted form. Later that year, the CFPB’s arbitration rule was retroactively nullified when President Trump signed into law H.J. Res. 111, a Joint Disapproval and Nullification Resolution (see SAA 2017-41 (Nov. 1)). Congress had exercised its authority under the Congressional Review Act, (“CRA”) 5 USC §§ 801 et seq., which allows Congress to legislatively nullify any regulation within 60 legislative/session days of its publication.

New Report Hardly Mentions Arbitration

Given this past history, it’s not surprising that the Report has few references to arbitration, and those are neutral or even positive. After noting the nullified attempt to restrict class action waivers, the Report states at Volume I, p. 248: “Arbitration and other types of alternative dispute resolution reduce the costs of conflict resolution and thereby enable consumers to better vindicate their rights without requiring a lawyer and extensive litigation. Arbitration tends to be relatively informal and often does not require a lawyer. Lawsuits, by contrast, are highly formal, and failure to use a lawyer risks running afoul of the various rules and complexities of court proceedings, resulting in the dismissal of one’s case.”

Biden Administration will Likely Take on Arbitration

It seems likely to us that the Biden CFPB will resurrect the arbitration rule, perhaps this time taking on PDAAs as well as class action waivers. We say “Biden CFPB” because the President now has the legal authority to terminate the Director at will. In a narrow decision split along ideological lines, SCOTUS held in Seila Law LLC v. Consumer Financial Protection Bureau, 140 S.Ct. 991 (Feb. 14, 2020), that the structure established by Dodd-Frank is unconstitutional as to limits on the President’s power to remove the director. Said Chief Justice Roberts’ majority Opinion: “We therefore hold that the structure of the CFPB violates the separation of powers. We go on to hold that the CFPB Director’s removal protection is severable from the other statutory provisions bearing on the CFPB’s authority. The agency may therefore continue to operate, but its Director, in light of our decision, must be removable by the President at will.” Based on this ruling we are pretty certain President Biden will replace Trump-era Director Kathy Kraninger with his own nominee who will pursue the Democrats’ anti-mandatory predispute arbitration agenda* in the consumer and employment areas. And, as reported elsewhere in this Alert, there is already media speculation that Mr. Biden intends to nominate Federal Trade Commission member Rohit Chopra as the next Director.

(ed: *See, e.g., 2020 Democratic Party Platform, p. 24: “Consumers, workers, students, retirees, and investors who have been mistreated by businesses should never be denied their right to fight for fair treatment under the law. Democrats will support efforts to eliminate the use of forced arbitration clauses in employment and service contracts, which unfairly strip consumers, workers, students, retirees, and investors of their right to their day in court.” **The Release has a nice summary of the Task Force’s findings and recommendations. ***Not to be sticklers, but the Report uses the header and logo “Bureau of Consumer Financial Protection” which was floated but dropped as a name change in 2017.)

 

Biography


George H. Friedman is the publisher and Editor-in-Chief of the Securities Arbitration Alert, a weekly online publication covering the latest developments in financial services arbitration and mediation. He is also the principal of George H. Friedman Consulting, LLC, providing expert advice on arbitration and mediation in general and the FINRA dispute resolution forum in particular.

He is former Executive Vice President - Dispute Resolution of the Financial Industry Regulatory Authority (“FINRA”), a position he held through January 2013. He held the same title at NASD, which consolidated with NYSE Member Regulation to form FINRA in 2007. In this capacity, he was in overall charge of FINRA's dispute resolution program, carried out by the company's four regional offices and 72 hearing locations in the United States and abroad, 200 employees, and an annual budget of $50 million. He also served as Secretary of the Securities Industry Conference on Arbitration. He has been referred to by the U.S. Court of Appeals—4th Circuit as a “leading arbitration expert.” He is a member of the American Arbitration Association's National Roster of Neutrals.

Mr. Friedman is an Adjunct Professor of Law at Fordham Law School, where he has taught a course on alternative dispute resolution since 1996. He is Chairman of the Board of Directors of Arbitration Resolution Services, Inc. of Coral Springs, Florida. Arbitration Resolution Services is an innovative online arbitration services company facilitating an affordable alternative to costly courtroom litigation and in-person arbitration for resolving Business-to-Business, Business-to-Individual, and Vehicle and Property Damage disputes. ARS is unique in that its entire process can be completed online through the company website.

In his extensive dispute resolution career, he previously held a variety of positions of responsibility at the American Arbitration Association, most recently as Senior Vice President from 1994 to 1998. He joined NASD in 1998 as Senior Vice President of NASD's Dispute Resolution Division, and was named Executive Vice President in 2002.

Mr. Friedman received a B.A. in Political Science from Queens College, and a Juris Doctor from Rutgers Law School - Newark, where he was an editor of the Law Review. He is admitted to the New York and New Jersey Bars and the United States Supreme Court, and is a Certified Regulatory and Compliance Professional. Mr. Friedman is a member of the Securities Experts Roundtable, and of several bar associations. He is past chair of the Committee on Alternative Dispute Resolution of the New York County Lawyers Association. He is a member of the Banking Advisory Committee of Bergen (NJ) Community College.

Mr. Friedman has lectured extensively on the subject of alternative dispute resolution, and has the distinction of being one of the architects of the American Arbitration Association’s Due Process Fairness Protocols for both employment arbitration and health care dispute resolution, and assisted in creating the Consumer Due Process Protocol. He has published often, with articles appearing in the Securities Arbitration Commentator, the ABA's Dispute Resolution Magazine, the New York Law Journal, the Rutgers Law Review, and the National Law Journal. He has blogs at Arbitration Resolution Services, Inc., the Securities Arbitration Commentator, and the World Future Society, among others.



Email Author
Author Website

Additional articles by George Friedman