CFPB Reignites Debate Over Pre-Dispute Consumer Arbitration Agreements
Arbitration in consumer financial disputes has long been a flashpoint in the ongoing tug-of-war between regulatory agencies, industry advocates, and consumer protection organizations. That battle has been reignited by a 2023 petition urging the Consumer Financial Protection Bureau (CFPB) to ban pre-dispute consumer arbitration agreements—a petition now drawing formal opposition from key members of Congress.
In recent weeks, U.S. Senator Thom Tillis (a member of the Senate Banking Committee) and Representative Andy Barr (Chair of the House Financial Services Subcommittee on Financial Institutions and Monetary Policy) submitted a letter objecting to the CFPB’s consideration of the petition. Their arguments have far-reaching implications for arbitration provisions embedded in everything from credit card agreements to payday loan contracts.
The Petition at Issue: Seeking to Ban Pre-Dispute Arbitration
The petition, submitted in 2023 by a coalition of consumer advocacy organizations, calls on the CFPB to prohibit pre-dispute arbitration agreements in consumer financial contracts. At the core of the request is a claim that mandatory arbitration clauses undermine consumer rights by forcing individuals into a private forum—often without a real understanding of what rights they’re waiving.
Rather than eliminate arbitration entirely, the petition argues that consumers should be given the option: proceed with arbitration if they so choose, or pursue litigation in public court. In other words, arbitration should be opt-in, not a mandatory default.
This argument touches on well-established criticisms of consumer arbitration, including:
Perceived lack of transparency in private arbitration proceedings
Imbalance of power between financial institutions and individual consumers
Limited discovery and appeal rights in arbitration
Concerns over bias when companies select the arbitration provider
Despite these concerns, others maintain that arbitration offers a faster, more cost-effective method of dispute resolution—especially in cases where court litigation would be too expensive to justify the recovery sought.
Congressional Opposition: Tillis and Barr Push Back
In their written objection, Senator Tillis and Representative Barr assert that the CFPB lacks the authority to ban pre-dispute arbitration agreements and that doing so would violate the Congressional Review Act (CRA). Their central claim is that the petition is “substantially similar” to a prior CFPB rule that Congress invalidated in 2017.
The 2017 rule, issued under Director Richard Cordray, had sought to ban class action waivers in consumer arbitration agreements. However, within months, Congress passed a resolution overturning that rule under the CRA—preventing the CFPB from issuing a new rule that is “substantially the same.”
Tillis and Barr argue that the current petition amounts to a second bite at the same apple. They caution that if the CFPB acts on the petition by initiating rulemaking, the agency would once again be exceeding its statutory authority and violating federal law.
They also emphasize the finality of the CRA: once Congress rejects a rule, the agency may not reissue that rule “in substantially the same form” unless authorized by new legislation. According to their letter, the CFPB’s consideration of this petition ignores that legal limitation.
The Legal and Policy Landscape
The legal status of pre-dispute arbitration agreements is grounded in the Federal Arbitration Act (FAA), which has long been interpreted to favor enforcement of valid arbitration agreements. However, the CFPB is one of the few agencies authorized to regulate arbitration clauses under Section 1028 of the Dodd-Frank Act, so long as it conducts a thorough study of arbitration's impact on consumers.
In 2015, the CFPB published such a study and concluded that arbitration clauses, especially those including class action waivers, harm consumers by limiting access to legal recourse. That report formed the basis of the now-repealed 2017 rule.
But since that time, the legal environment has shifted:
SCOTUS has reaffirmed the FAA’s preemptive effect over many state-level restrictions on arbitration.
Mass arbitration has surged, turning arbitration’s cost-efficiency into a potential liability for businesses.
The CFPB has been more aggressive under Director Rohit Chopra, exploring broader regulatory tools to address perceived consumer harms.
Against this backdrop, the agency’s next move will be closely scrutinized—not just by lawmakers, but by the financial services industry, consumer advocates, and the ADR community alike.
What This Means for Arbitration Going Forward
If the CFPB proceeds with formal rulemaking in response to the petition, it will almost certainly face legal challenges. Opponents are likely to argue that such a rule:
Violates the Congressional Review Act, as Tillis and Barr allege
Conflicts with the FAA, which generally supports enforcement of arbitration agreements
Oversteps the agency’s authority by attempting to make policy judgments that Congress has already resolved
Supporters of the petition, however, may counter that:
The new petition differs meaningfully from the 2017 rule, focusing on consumer choice, not class action bans
The CFPB retains statutory authority to regulate arbitration based on new findings or market trends
Rulemaking is essential to rebalancing power in the consumer-financial services relationship
Whether or not the petition ultimately triggers a formal regulatory process, the current debate is a clear signal that the use of arbitration in consumer financial contracts will remain under close scrutiny.
Key Takeaways for Practitioners and Neutrals
Expect increased uncertainty for consumer arbitration clauses, especially in banking, fintech, and credit services.
Watch for litigation if the CFPB begins rulemaking—legal challenges may shape the final contours of any rule.
Adopt best practices now to ensure consumer arbitration clauses are fair, transparent, and comply with applicable law.
Prepare for possible shifts in arbitration design, including more opt-in provisions or enhanced notice requirements.
To read the original petition, click here. To read the Tillis-Barr letter, click here.
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