The Consumer Financial Protection Bureau's arbitration rule, issued Monday, could put dealerships and auto lenders at risk for class-action lawsuits. But some experts questioned whether the rule will ever take effect, while various industry associations quickly issued statements denouncing the rule.
The rule prohibits banks and other financial services companies from including mandatory arbitration clauses in contracts. Doing so effectively stops consumers from pursuing claims of wrongdoing via class-action lawsuits by forcing consumers to seek relief through individual arbitration cases.
If the rule takes effect, lenders would be prohibited from having arbitration clauses with class-action waivers in indirect auto-finance contracts, said Randy Henrick, an attorney specializing in consumer protection laws and auto dealer sales and F&I compliance.
"If that's the case, then both the lender and the dealer would be subject to class action for something in the contract or something the dealer uniformly does," he said.
Michael Benoit, chairman at the Hudson Cook law firm, said the rule affects lenders directly, and dealers indirectly, "but the result is kind of the same."
For a dealership, a class action would be much smaller than for a lender because the class would include only the dealership's finance customers. "For the lenders, it's huge because they're buying from many, many, many dealers," he said.
Consumer advocates want to target lenders most of all, Benoit said. They have "deep pockets" and a group that expands nationwide, rather than a smaller group of dealership customers, so a class action could represent a vast number of people.
"There's much more appeal to go after" lenders, he said. If the plaintiffs' attorneys are choosing between going after the dealership or the captive, they will most likely choose the captive, he said.