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Looking Ahead: Restricting Mandatory Arbitration Clauses

By Elizabeth K. Miles

Does your business include mandatory arbitration clauses in its contracts? Such clauses are increasingly common, but restrictions may be imminent.

One source of restrictions may be through rulemaking by the Consumer Financial Protection Bureau (CFPB). Congress, through the Dodd-Frank Act, required the CFPB to study the use of mandatory arbitration clauses in consumer contracts and to issue regulations based on its study. In October 2015, the CFPB announced that it is considering proposing rules that ban arbitration clauses that prohibit consumers from participating in class action lawsuits for products and services the CFPB oversees. These products and services include credit cards, checking and deposit accounts, certain auto loans, payday loans, private student loans, and installment loans.

The rules would not ban arbitration clauses entirely, but would require a clause to state that it does not apply to cases filed as class actions until class certification is denied or the class claims are dismissed. The rules also would require companies using arbitration clauses to submit all claims filed and awards issued to the CFPB so the CFPB can monitor the arbitration process. The CFPB may also put those claims and awards on its website for the public to see. The CFPB has not disclosed when the rules will be issued, but it may be as early as mid-2016.

Even wider ranging effects could be felt if Congress enacts the Restoring Statutory Rights and Interests of the States Act of 2016. The bill was proposed in February 2016 by Senators Patrick Leahy of Vermont and Al Franken of Minnesota. It seeks to: (1) ban mandatory arbitration of claims brought by individuals and small businesses for violations of federal or state law or constitution; (2) authorize states to limit enforcement of arbitration clauses, and; (3) require a court, not an arbitrator, to decide whether the Federal Arbitration Act applies to an arbitration agreement.

If enacted, the bill would make claims brought under laws like the Family Medical Leave Act and the Fair Labor Standards Act exempt from arbitration. It is expected to face strong opposition in Congress and from the business community.

Although these restrictions have not yet been enacted, it would be prudent to review your contracts to determine whether they will need to be revised in the event new restrictions are imposed. Davis & Kuelthau will continue to monitor the status of the CFPB regulations and the Restoring Statutory Rights Act and will issue a further Alert with our recommendations if either is enacted.

If you have any questions regarding this article, please contact your Davis & Kuelthau, s.c. attorney or the author, Elizabeth K. Miles, at 414.225.1491 /