Life, liberty, and the pursuit of class actions
The CFPB yesterday utilized the authority given to it by Congress and outlawed consumer contract clauses that forbid consumers from joining class action lawsuits. Given the political environment, the CFPB’s rule may well be the most controversial of the Cordray tenure, but its direct impact on most credit unions will be minimal.
First, for the stuff you need to know: The regulation takes effect 60 days after its publication in the Federal Register and applies to agreements entered into 180 days after that date. It generally means that a “consumer financial product or service” offered or provided for use by consumers primarily for personal, family or household purposes as defined in 12 U.S.C.A. § 5481 cannot include a pre-arbitration dispute clause that bans members from participating in class actions. New language is mandated for inclusion in your agreements if you include arbitration in your consumer contracts, so get ready to talk to your vendors yet again. To every general rule there are always exceptions, so please take the time to read the regulation.
Why will its impact on most credit unions be minimal? Because most smaller credit unions do not have these clauses in the first place. Nevertheless, arbitration clauses are an important means of managing litigation risk for larger institutions that are more likely to be the target of class actions. As with an industry, credit unions certainly have a stake in hoping this regulation is scaled back or eliminated.continue reading »