The Modern Arbitration Frankenstein: The Rise and Fall of the Consumer Financial Protection Bureau’s Arbitration Rule

Journal of Dispute Resolution Volume 2018 | Issue 2 Article 15 2018 The Modern Arbitration Frankenstein: The Rise and Fall of the Consumer Financial Protection Bureau’s Arbitration Rule Nick Leyh Follow this and additional works at: https://scholarship.law.missouri.edu/jdr Part of the Dispute Resolution and Arbitration Commons Recommended Citation Nick Leyh, The Modern Arbitration Frankenstein: The Rise and Fall of the Consumer Financial Protection Bureau’s Arbitration Rule, 2018 J. Disp. Resol. () Available at: https://scholarship.law.missouri.edu/jdr/vol2018/iss2/15 This Comment is brought to you for free and open access by the Law Journals at University of Missouri School of Law Scholarship Repository. It has been accepted for inclusion in Journal of Dispute Resolution by an authorized editor of University of Missouri School of Law Scholarship Repository. Leyh: The Modern Arbitration Frankenstein: The Rise and Fall of the Con The Modern Arbitration Frankenstein: The Rise and Fall of the Consumer Financial Protection Bureau’s Arbitration Rule NICK LEYH* I had worked hard for nearly two years, for the sole purpose of infusing life into an inanimate body. For this I had deprived myself of rest and health. I had desired it with an ardour that far exceeded moderation; but now that I had finished, the beauty of the dream vanished, and breathless horror and disgust filled my heart.1 I. INTRODUCTION The above quote is Dr. Victor Frankenstein’s reaction after he resurrects a corpse in Mary Shelley’s classic novel Frankenstein. Dr. Frankenstein seeks to reanimate a corpse to achieve a better understanding of life and ultimately conquer death itself.2 Yet, the reanimation goes awry, and Dr. Frankenstein abandons his creation, who in turn exacts revenge against its creator.3 Shelley’s tale of the attempted creation of an indispensable cure that is in turn perverted into a monstrous harm is analogous to the modern state of forced arbitration. To an extent, arbitration was once utilized as an effective alternative to litigation, aiding consenting parties in finding a quicker and less expensive way to resolve legal issues. However, arbitration has mutated from an alternative to a de facto replacement for litigation, at least in the realm of federal consumer class actions where mandatory arbitration provisions containing class actions waivers are ubiquitous. Moreover, the recent failure4 of the Consumer Financial Protection Bureau (“CFPB”) to successfully regulate these arbitration provisions resembles Dr. Frankenstein’s ill-fate at the hands of his own creation. This Comment will analyze the CFPB’s proposed rule prohibiting companies from including a ban on class actions within their arbitration provisions. The * B.A. Macalester College, 2013. J.D. candidate, University of Missouri 2019. I am thankful for the insight and hard work of both the Journal of Dispute Resolution editorial staff and my comment advisor Robert Bailey. I would also like to thank Greg for provoking an interest in the CFPB in me years earlier and Piku for her support. 1. MARY SHELLEY, FRANKENSTEIN 58 (Johanna M. Smith ed., Bedford Books of St. Martin’s Press 1992) (1818). 2. See id. 3. See id. 4. Jessica Silver-Greenberg, Consumer Bureau Loses Fight to Allow More Class-Action Suits, N.Y. TIMES (Oct. 24, 2017), https://www.nytimes.com/2017/10/24/business/senate-vote-wall-street-regulation.html. Published by University of Missouri School of Law Scholarship Repository, 1 Journal of Dispute Resolution, Vol. 2018, Iss. 2 [], Art. 15 104 JOURNAL OF DISPUTE RESOLUTION [Vol. 2018 CFPB’s proposed rule5 has created a political firestorm, resulting in strong opposition to the ban on class action waivers amongst both House and Senate legislators.6 Further, the current proposed rule has already been rejected by the House, utilizing the Congressional Review Act, an act passed in 1996 that allows the legislature to “fast-track” votes on legislation with only a simple majority from both houses of Congress,7 to enable a vote. The debate that surrounded the rule reflects the modern debate surrounding the efficacy of using arbitration provisions in consumer contracts:8 Proponents of the rule view the ubiquitous use of arbitration provisions in consumer contracts as a way for companies to evade a courthouse and justice,9 while detractors of the rule insist that arbitration is a simple, cheap, and effective way for consumers to bring claims against companies and the CFPB’s rule effectively removes this option for consumers.10 This Comment will begin by reviewing the history of the CFPB’s rule, from the initial arbitration inquiry conducted by the CFPB to the current debate in the legislature. Next, this Comment will detail the consequences of the rule’s recent failure. Lastly, this Comment will critically examine the necessity of the proposed rule in the current age of ever-present arbitration provisions within consumer contracts and the lasting ramifications to consumers of both passage and failure. II. BACKGROUND A. Origins of the Arbitration Rule The CFPB was born out of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) in response to the financial crisis11 in 2008.12 Dodd-Frank outlined the powers and responsibilities of the CFPB including specifically granting the CFPB the capability to review and restrict pre-dispute arbitration.13 Moreover, Dodd-Frank specifically instructed the CFPB to “conduct a study of, and . . . provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute.”14 The CFPB announced a public 5. Pub. L. 111-203, 111th Congress, tit. X (2010). 6. See James Koren, House Votes to Kill New Bank Arbitration Rule in Blow to Federal Consumer Agency, L.A. TIMES (July 25, 2017), http://www.latimes.com/business/la-fi-arbitration-house-vote20170725-story.html. 7. See Richard S. Beth, Disapproval of Regulations by Congress: Procedure Under the Congressional Review Act (Oct.10, 2001), https://www.senate.gov/CRSpubs/316e2dc1-fc69-43cc-979adfc24d784c08.pdf. 8. Jean R. Starlight, Creeping Mandatory Arbitration: Is It Just?, 57 STAN. L. REV. 1631, 1661 (2005). 9. See id. 10. See Eric J. Mogilnicki, The CFPB’s Flawed Case for Banning Class Action Waivers, LAW360 (July 13, 2016), https://www.law360.com/articles/815971/the-cfpb-s-flawed-case-for-banning-class-action-waivers. 11. Beginning in 2007, the subprime mortgage market bubble burst leading to an international financial crisis and the collapse of huge investment banks like Lehman Brothers, a massive government bailout, and stricter regulation of the financial industry through legislation and the development of regulatory agencies. See generally THE FINANCIAL CRISIS INQUIRY REPORT: FINAL REPORT OF THE NATIONAL COMMISSION ON THE CAUSES OF THE FINANCIAL AND ECONOMIC CRISIS IN THE UNITED STATES, Financial Crisis Inquiry Commission (Jan. 2011). 12. Pub. L. 111-203, 111th Co (...truncated)