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    Plain English Guidance to the CFPB's Final Rule on Arbitration Agreements

    The Consumer Financial Protection Bureau ("CFPB") issued its final rule on arbitration agreements on the 10th of July 2017.  One week ago today, on Monday, the 18th of September, the CFPB released its Small Entity Compliance Guide, which will help you comply with the final arbitration rule. This guidance will help you understand the rule in plain English.

    Because of the maddening, disastrous aftermath of the Equifax data breach, arbitration clauses are once again at the forefront of relevancy (Hold on - catch me up - why? Well, Equifax initially had an arbitration and limitation of liability clause in its policy that prevented consumers who had enrolled in its free credit monitoring service from suing Equifax. After the entire internet freaked out, this arbitration clause was removed). 

    If your Institution is seeking to help accountholders or members affected by this massive data breach, watch or listen to our Equifax Data Breach Vlog webpage. If you're angry and frustrated, take comfort in knowing your feelings are justified and shared by the iTod team. We've written to our regulators and lawmakers to take action to protect Financial Institutions and their customers, and you can too. Send a letter demanding that the following folks investigate the Equifax data breach and provide the US public with answers ASAP:

    (1) NCUA

    Mark A. Treichel

    Executive Director

    National Credit Union Administration

    1775 Duke Street

    Alexandria, VA 22314

    (2) FTC (Addressed to both the Acting Chairwoman and Commissioner)

    Hon. Maureen K. Ohlhausen              Hon. Terrell McSweeny

    Acting Chairman                              Commissioner

    Federal Trade Commission                Federal Trade Commission

    600 Pennsylvania Ave, NW                600 Pennsylvania Ave, NW

    Washington, DC 20580                     Washington, DC 20580

    3. CFPB

    Richard Cordray

    Director

    Consumer Financial Protection Bureau

    1700 G. Street, NW

    Washington, DC 20552

    Alexandria, VA 22314

    (4) Congress (Senate Majority & Minority Leaders + House Speaker & Minority Leaders)

    The Honorable Mitch McConnell              The Honorable Chuck Schumer

    Majority Leader                                     Minority Leader

    United States Senate                             United States Senate

    Washington, D.C. 20510                        Washington, D.C. 20510

     

    The Honorable Paul Ryan                       The Honorable Nancy Pelosi

    Speaker                                                Minority Leader

    U.S. House of Representatives                U.S. House of Representatives

    Washington, D.C. 20515                         Washington, D.C. 20515

     

    Now that we've blown off some steam, let's examine the language requirements of the final rule on arbitration agreements. 

    Nine Different Model Clauses

    Below is a breakdown of the nine different model clauses in the arbitration rule, and how you can use eeach of these clauses. 

    All Pre-Dispute Arbitration Agreements that are entered in or after March 19, 2018, must include one of these two clauses:

    Citation

    Language

    When Required

    § 1040.4(a)(2)(i)

    “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.”

    Generally, unless other language is applicable.

    § 1040.4(a)(2)(ii)

    “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.”

    Can be used at the credit union's option as an alternative to the generally required language when the agreement applies to multiple products or services, only some of which are covered under Part 1040.

    In addition to the required clauses, the CFPB has provided the following optional, add-on clauses:

    Citation

    Language

    When Required

    § 1040.4(a)(2)(iv)(A)(1)

    “This provision does not apply to parties that entered into this agreement before March 19, 2018.”

    Optional add-on to the above agreement clauses

    § 1040.4(a)(2)(iv)(A)(2)

    “This provision does not apply to products or services first provided to you beforeMarch 19, 2018 that are subject to an arbitration agreement entered into before that date.”

    Optional add-on to the above agreement clauses

    § 1040.4(a)(2)(iv)(B)

    “This provision does not apply to persons that are excluded from the Consumer Financial Protection Bureau's Arbitration Agreements Rule.”

    Optional add-on to the above agreement clauses

    There are also two add-on clauses that are to be used for specific issues:

    Citation

    Language

    When Required

    § 1040.4(a)(2)(iv)(B)

    “This provision also applies to the delegation provision.”

    For agreements that contain a delegation provision, the required clause must be included in each delegation provision. Alternatively, credit unions can add this language to the generally required clause to meet that requirement.

    § 1040.4(a)(2)(vi)

    “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.”

    Add-on language applicable for an entity that believes it has sovereign immunity from suit.

    Scenario 1: A loan is (1) originated by another lender after March 19, 2018; (2) the loan agreement has a Pre-Dispute Arbitration Agreement, (3) but neither of the required clauses is included in the Agreement. Why? Well, the originating lender may have been exempt.  

    So What Should I Do? If you purchase the loan, you step into the shoes of the original lender for the purposes of the agreement at bar. If you become a party to an agreement established on or after March 19, 2018, and that agreement doesn't contain either of the required clauses, the CFBP requires you to either (A) amend the agreement and add one of the required clauses, or (B) give the consumer a written notice within 60 days.

    If you choose to provide the consumer with written notice, that document must contain this language:

    Citation

    Language

    When Required

    § 1040.4(a)(2)(iii)

    “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.”

    Written notice language applicable when the agreement only applies to covered products and services.

    § 1040.4(a)(2)(iii)

    “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.”

    Written notice language applicable when the agreement applies to some products, only some of which are covered under Part 1040.

     

    Disclaimer: This post drew substantially from a NAFCU publication.