Franchising & Distribution Law Blog

In July, the Consumer Financial Protection Bureau (CFPB) announced a new rule that, among other things, prohibited contractual provisions that barred a consumer from asserting claims in a class action. The rule required that contracts include language to notify a consumer that they may file a class action. The CFPB’s new rule would apply to certain offerings of consumer financial products or services. For example, it was intended to apply to consumers’ credit card and bank account contracts. The prohibition on class action waivers applied to pre-dispute arbitration provisions, meaning agreements entered before any dispute arises. As a result, consumers would be free to file and participate in class actions for products and services covered by the rule.

Immediately the rule faced opposition, well before it went into effect. In July, the House voted to repeal the CFPB’s rule. On Oct. 25, 2017, the Senate voted to repeal the rule, with Vice President Mike Pence casting the tie-breaking vote in favor of repeal. The president is expected to sign the repeal. As a result, the CFPB’s rule will not take effect.

Although the CFPB’s rule was limited to particular types of contracts, it is unlikely this is the end of the debate over class action waivers. To avoid risks associated with class actions, many companies (including franchisors) include class action waiver provisions in their contracts—whether the contract includes an arbitration provision or not.