New Arbitration Rule Will Allow Consumers to Take Debt Relief and Credit Repair Companies to Court

The Consumer Financial Protection Bureau (CFPB) today issued an announcement about a new Arbitrations Agreement Rule that will prevent companies from requiring consumers to only dispute issues with companies through arbitration and not enter a class action suit against the company.

This new rule covers companies who are “providing consumers with information derived from their consumer credit file, engaging in credit repair or debt management activities.”

Specifically the rule says it covers entities, “providing services to assist with debt management or debt settlement, to modify the terms of any extension of consumer credit, or to avoid foreclosure, and providing products or services represented to remove derogatory information from, or to improve, a person’s credit history, credit record, or credit rating.”

The CFPB says, “Our new rule will restore the ability of groups of people to file or join group lawsuits. In some cases, not only will companies have to provide relief, they will also have to change their behavior moving forward.”

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The Arbitration Agreements Rule requires that, upon entering into a pre-dispute arbitration agreement on or after the compliance date, a provider must ensure that certain language set forth in the Rule is included in the agreement. Generally, the required language informs consumers that the agreement may not be used to block class actions. The Rule allows a provider to use an alternative method of providing required language for a pre-dispute arbitration agreement that existed between other parties prior to the provider entering into the agreement. If such an agreement does not already contain the language required by the Rule, the provider must amend the agreement to include language required by the Rule or provide a written notice to each consumer subject to the agreement within 60 days of entering into the pre-dispute arbitration agreement.

Additionally, the new rule requires companies to submit their claims, awards, and other information about the arbitration of individual disputes to the CFPB.

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The full text of the new Arbitrations Agreement Rule can be found here.

The inclusion of the debt relief industry is yet another example why the debt relief industry should/must work hard to root out bad actors to prevent the need for such rules. The published Rule specifically says the inclusion of debt relief services was born out of the CFPB experience with “the types of services that would have fallen within this proposed coverage, the proposal (at 32875 n.458) identified the following Bureau enforcement actions: Complaint at ¶ 4, Consumer Fin. Prot. Bureau v. Meracord, LLC, No. 13- 05871 (W.D. Wash. Oct. 3, 2013); Complaint at ¶ 4, Consumer Fin. Prot. Bureau v. Global Client Solutions, No. 14-06643 (C.D. Cal. Aug. 25, 2014); Complaint at ¶¶ 8-14, Consumer Fin. Prot. Bureau v. Orion Processing, LLC, No. 15-23070 (S.D. Cal. Aug. 17, 2015).”

The AAR says, “the Bureau believed that the proposal should cover debt relief services, such as services that offer to renegotiate, settle, or modify the terms of a consumer’s debt. Proposed § 1040.3(a)(3) would have included in the coverage of proposed part 1040 providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of consumer credit covered by proposed § 1040.3(a)(1)(i), or avoiding foreclosure.”

This may even include student loan assistance services since the CFPB and others have taken the position student loan assistance can be thought of as assisting to modify the terms of the consumer student loan debt.

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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