NAHB Senior Officers Discuss Arbitration Agreements with CFPB Director

Arbitration - dictionary definitionNAHB Senior Officers met with Consumer Financial Protection Bureau (CFPB) Director Richard Cordray on Aug. 23 to air concerns over a proposed rule by the agency regarding arbitration agreements and also discussed other housing finance-related issues.

CFPB would prohibit providers of consumer finance products and services from enforcing an arbitration agreement that bars the consumer from filing or participating in a class action with respect to the covered consumer financial product or service. NAHB submitted written comments to the agency on this rule last week.

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires the CFPB to study the use of pre-dispute arbitration agreements in consumer financial services contracts and to report its findings to Congress.

Dodd-Frank authorizes the CFPB to regulate the use of such agreements, conditioned on finding that prohibiting or restricting their use is “in the public interest and for the protection of consumers.”

The CFPB conducted the requisite study and reported its findings to Congress in March 2015. The CFPB study compared the outcomes of arbitrations to the outcomes of both individual lawsuits and class action lawsuits and concluded that class actions are more effective at providing consumers with relief, and in changing corporate behavior, than either individual arbitrations or individual lawsuits.

Arbitration Clauses in Home Contracts

NAHB is extremely interested in the topic of class action waivers and arbitration agreements because many builders include a provision for some form of alternative dispute resolution, often arbitration, in their contracts for the purchase or construction of a new home.

NAHB supports initiatives that promote binding arbitration in residential construction contracts and supports the trend in which the Supreme Court has made it easier for companies to significantly reduce their risk of class action exposure via class action waivers.

In its comments, NAHB noted the proposed rule is unclear as to whether a provider of consumer financial products and services must include the class-action disclaimer in a separate pre-dispute arbitration agreement that does not apply to covered products and services but that may be part of a transaction that involves some covered products or services.

For example, some builders offer seller financing to consumers to purchase the completed home. In such a case, the builder may use a separate contract to govern construction services on the one hand and to govern the financing on the other.

NAHB seeks to obtain clarity for our members and their consumers regarding whether the separate, but potentially related contract for the non-covered services must contain the class-action disclaimer.

Specifically, NAHB asked CFPB to clarify that the proposed rule will not regulate the use of pre-dispute arbitration agreements in contracts that do not contain covered products or services, regardless of whether the provider enters into other contracts with consumers that do pertain to covered products and services that are regulated by the proposed rule.

For more information, contact David Jaffe at 800-368-5242 x8317.

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  1. vince says:

    how was Cordray? does he agree with Us?

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