On May 5, 2016, the Consumer Financial Protection Bureau (CFPB), the U.S. consumer protection agency, released proposed regulations that would prohibit mandatory arbitration clauses used by companies to avoid the publicity of court proceedings, including class actions. The proposed regulations, which are expected to be finalized next year, will apply to most consumer financial products and services that the CFPB oversees. Congress has already prohibited arbitration agreements in the residential mortgage market – the largest market under the CFPB’s purview.
Mandatory arbitration clauses generally allow companies to prevent lawsuits from proceeding in court and typically bar consumers from bringing group claims through the arbitration process. The CFPB claims that since very few consumers bring individual actions against their financial service providers, class actions would provide for more effective access to justice. Further, the CFPB maintains that class actions offer opportunities for consumers to obtain relief in instances where the cumulative harm to all affected consumers is significant, and serve to modify corporate behaviour.
The CFPB’s proposed regulations mirror what has already occurred in many Canadian jurisdictions. In Canada, an arbitration clause in a commercial contract is generally enforceable, unless there is an express contrary legislative intention – typically found in consumer protection legislation. For example, in Ontario and Québec, consumer protection legislation expressly prohibits mandatory arbitration clauses in consumer agreements thereby preserving a consumer’s access to the courts and access to class actions.1
On the one hand, this move would be appealing to those who have long claimed that mandatory consumer arbitration clauses create access to justice issues. This was certainly one of the motivators for the Canadian approach. On the other hand, in the U.S., unlike in Canada, there already exists a robust class arbitration process that provides access to justice in respect of mass consumer claims. This thinking is consistent with the Supreme Court of Canada’s recent pronouncement that access to justice no longer necessarily requires access to a judge. Commercial arbitration is a well-regarded and meaningful access to justice tool in Canada, with judicial review processes in place to prevent unequal or otherwise unfair treatment of parties to an arbitration agreement.
“In the final analysis, this seems to be about picking the most appropriate form of dispute resolution for consumer claims,” commented Scott Siemens, President of the ADR Institute of Canada (ADRIC). “One of the core values of ADR is about appropriate dispute resolution; a principle that ADRIC fully supports.” Moreover, it is expected that these proposed regulations will in no way detract from the effective use of commercial arbitration in situations involving individual claims.
ADRIC is Canada’s national leader in the development and promotion of dispute resolution services. ADRIC sets the benchmarks for best ADR practices in Canada, and, in concert with its regional affiliates from coast to coast, promotes conflict resolution through arbitration, mediation and other forms of alternative dispute resolution. With over 2000 member practitioners drawn from every corner of the country, ADRIC sets the highest quality assurance for industry-leading arbitration and mediation rules, codes of ethics and conduct, and discipline and complaint procedures. ADRIC.ca
Janet McKay, Executive Director
ADR Institute of Canada (ADRIC)
416-487-4733 x 105
For greater detail, please see: Michael Schafler & Amer Pasalic, “Class Action vs. Arbitration: A Cross-Jurisdictional Overview of Consumer Protection Legislation in Canada” (2013) 22 Canadian Arbitration and Mediation Journal p5