Levine: What’s all this fuss about arbitration?

FORT WORTH, Texas - 

The Consumer Financial Protection Bureau’s new arbitration rule has gotten a lot of coverage lately and deservedly so. 

If and when it goes into effect, it will ban class action waivers and bring about some other notable changes. The big impact of this will be that just about every arbitration clause or agreement in use today would need to be re-written, because they currently contain provisions by which a consumer waives the ability to bring or join a class action lawsuit. 

Another significant change would be that those lenders or creditors using arbitration would have to file a report with the CFPB on the type of case, claims involved, time, cost, and just about any other piece of information.  It sure seems like the CFPB is seeking to gather this information to suit its own purposes.

Challenges to the rule

However, all is not lost. Both houses of Congress are considering bills to strike this new rule under the Congressional Review Act. This means that by a simple majority of each house of Congress, the rule may be terminated and never go into effect.  Also, it is rumored that CFPB director Richard Cordray will announce he is running for governor of Ohio, which will necessitate his resignation or removal.  Should this occur, a new director will be appointed by President Trump and may retract the rule.

Finally, many industry participants are certain to file judicial actions seeking to have the rule stricken. The bottom line is that as things stand today nothing is certain.

What it means for you

So what does all of this mean to you, the independent or buy-here, pay-here dealer?  First, there is great uncertainty whether the rule will take effect. If it does take effect, the industry would have until March 19 to comply with the new law and stop using class action waivers and obey the other parts of the new rule. 

What should you do now

First, keep an eye on additional emails like this to keep current on new developments. Secondly, start thinking about whether you want to keep using arbitration agreements if the rule were to go into effect. 

Even without protection from class action lawsuits, there are many benefits to using arbitration. Typically, arbitration cases are heard much faster than civil court cases, so the seemingly endless attorney's fees can be avoided. 

Plus, it is likely that a decision will be received sooner, which avoids the uncertainty of litigation. One must consider whether the new reporting requirements outweigh these benefits, though.


The news is grim but the game isn't over. Don’t jump to conclusions. Instead, take a thoughtful approach, stay informed, and please contact me if you'd like to discuss your particular practices and formulate a game plan. Every business is different and we can help you decide what's best in your situation.

Steve Levine is chief legal and compliance officer of Ignite Consulting Partners, which offers compliance, technology, process improvement and cyber security guidance to car dealers and finance companies. The combined experience of the Ignite team allows them to develop strategy, overcome internal obstacles and implement meaningful change. Contact info@IgniteCP.com to learn more. You can follow Steve on Twitter @LawyerLevine for compliance and industry-related content.