Death of the CFPB and Impact on Consumer Arbitration

By: George Calhoun

The Consumer Financial Protection Bureau (“CFPB”) has spent years trying to limit provisions that may be placed into consumer contracts, particularly with regard to class-action waivers, arbitration, and damages limitations. In 2015, the CFPB conducted a study of consumer arbitration clauses.  Notably, the CFPB’s study found that few class action cases proceed to trial, but in those that do, trial lawyers make $1 million per case, and only about 4% of consumers ever take the steps necessary to claim class action awards. The awards themselves typically average about $32. Almost 90% of cases filed as class actions result in no class recovery.[1]  The CFPB’s study showed that consumers receive 170 times more financial awards in arbitration than they do in class actions.  Nonetheless, the CFPB proceeded to pass a rule banning arbitration clauses in consumer contracts.

Congress didn’t see it that way, passing a Congressional Review Act resolution in 2017 that struck down the CFPB’s rule. That same law also prevents the CFPB from issuing “substantially similar” rules.  That has not stopped the CFPB from attempting to avoid that Congressional mandate.

In 2023, the CFPB proposed to establish a public registry for terms and conditions in consumer contracts.  According to the Chamber of Commerce, that proposal referenced arbitration 152 times and seemed geared to pressure companies to drop provisions that the CFPB could not mandate that they drop.

Just a few weeks ago, the CFPB proposed yet another rule that would “ban contract clauses that strip away fundamental freedoms.”  According to the CFPB, the proposed rule would “forbid covered persons from including in their consumer contracts any terms or conditions that purport to waive substantive legal rights and protections” or that “reserve to the covered person the right to unilaterally amend a material term of the contract.” This ban would not bar arbitration clauses or class-action waivers (since it cannot do so by law) but would prohibit companies from including provisions such as a waiver of a cause of action, a cap on statutory damages, or a time limitation on consumer claims.

On Saturday, February 8, 2025, however, CFPB acting chief Russell Vought ordered CFPB staff to stop work on proposed rules, to suspend the effective dates on any rules that were finalized but not yet effective, and to stop investigative work and not begin any new investigations.  So, it seems the most recent attempt to control consumer contracts on a national basis is dead on arrival.

Ironically, perhaps, plaintiffs’ firms have recently been using arbitration clauses against companies by attempting to sign up so many clients that the arbitration costs alone might drive settlement values.  While the ethics and legality of such practices are questionable, the shuttering of the CFPB leaves the determination of those issues for the courts and the marketplace. As such, we can expect to see continued variations in the law based on jurisdiction and increased emphasis on the practical economics of resolution of consumer disputes.

[1] Separately, the Treasury Department conducted its own analysis of the rule in 2017, which found that, “[t]he CFPB’s rule will impose extraordinary costs – generating and transferring $330 million to plaintiffs’ lawyers.”