By Ruder Ware Alumni
August 2, 2017
Finalized on July 17, 2017, the Arbitration Rule places significant limitations on financial institutions’ ability to designate arbitration as the dispute resolution mechanism in its contracts with depositors and borrowers; additionally, the Rule requires financial institutions to report to the CFBP information and data about individual arbitrations that result from pre-dispute arbitration agreements.
The House’s use of the Congressional Review Act to rescind the Arbitration Rule is welcome news to financial institutions of all sizes as the Rule would result in increased costs for and significant burdens on customers whose claims cannot be resolved through class actions, as it would require them to go to court for minor disputes. Additionally, arbitration serves as a cost effective and efficient dispute resolution mechanism – when compared to the costly and time consuming class action and court alternatives. Proponents of the Rule fear that financial institutions have unfair leverage in the negotiating power with customers and mandatory arbitration clauses infringe on customer’s constitutional rights.
Despite yesterday’s vote in the House, the Arbitration Rule has not (yet) been rescinded, under the Congressional Review Act, both the House and Senate must vote to repeal the Rule, before being delivered to the President for approval.
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