District Court Rules in Favor of Bank in Mandatory Arbitration Case

Mandatory arbitration provisions have been a hot topic for Consumer Financial Protection Bureau (CFPB) regulators, with the Bureau publishing proposed rules that would prohibit mandatory arbitration clauses. The topic has come up again in Beattie v. Credit One Bank, a new case from the U.S. District Court for the Northern District of New York (Case No. 5:15-cv-1315 (LEK/TWD).

In this case, the plaintiff signed up for a credit card and consented to being contacted by the defendant on their cell phone. Eventually, the plaintiff changed their mind and revoked consent, but the defendant kept making “multiple telephone calls” to the plaintiff. This led the plaintiff to accuse the defendant of a Telephone Consumer Protection Act (TCPA) violation, but the Cardholder Agreement stipulates that any dispute is subject to “mandatory, binding arbitration.”

District Court Judge Lawrence E. Kahn ruled in favor of the defendants in this case, granting their request to allow the arbitration process to proceed. The court ruled that the plaintiff knowingly agreed to the terms of the Cardholder Agreement, that the Agreement was not unconscionable, that the scope of the agreement is broad enough, and that the TCPA claims in this case are subject to arbitration.

This case is similar to a case from earlier this year, Harrington v. Regions Bank, which involved alleged TCPA violations and arbitration provisions. In that case, the District Court for the Middle District of Florida ruled in favor of the bank.

insideARM Perspective

In October 2015, the CFPB convened a Small Business Regulatory Enforcement Fairness Act (SBREFA) panel to review the proposals it was considering regarding arbitration provisions. At that time, the CFPB provided the SBREFA panel with an outline of their proposals regarding arbitration. The CFPB’s report on the input it received from the SBREFA panel was also made public as part of the release of the proposed rule. The SBREFA report can be found here. The Bureau has remarked that the “proposal is designed to protect consumers’ right to pursue justice and relief, and deter companies from violating the law.”

Now that the CFPB’s Notice of Proposed Rulemaking has been released, the best guess at this point is that any final rule would take effect sometime in 2017.

insideARM will continue to monitor and report on mandatory arbitration decisions in the courts. We will also continue to monitor and report on the CFPB rulemaking in the area.