Second Circuit Remands Case to District Court, Rules Web Provider Failed to Show Plaintiff Agreed to Arbitration

Recently, the Court of Appeals for the Second Circuit vacated in part a district court ruling, specifically its decision to dismiss a plaintiff’s putative-class action claim on the grounds that the plaintiff failed to plausibly state a claim for relief. Nicosia v. Amazon.com, Inc., No. 15-423-cv (2d Cir. Aug. 25, 2016). The district court concluded that a consumer was “bound by the mandatory arbitration provision in [a web provider’s] Conditions of Use” by placing an order on the web-based provider’s site; the Second Circuit was “not convinced.” The court reasoned that “[n]othing about the ‘Place your order’ button alone suggests that additional terms apply, and the presentation of terms is not directly adjacent to the ‘Place your order’ button so as to indicate that a user should construe clicking as acceptance.” The court further noted the web-based provider’s order page was distracting: “there appear to be between fifteen and twenty-five links on the Order Page, and various text is displayed in at least four font sizes and six colors (blue, yellow, green, red, orange, and black), alongside multiple buttons and promotional advertisements.” As a result, the court stated that it did “not hold that there was no objective manifestation of mutual assent here as a matter of law” but instead concluded that “reasonable minds could disagree on the reasonableness of notice.” The case was remanded for further proceedings.

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Industry Groups Voice Concern that the CFPB’s Arbitration Proposal Fails to Provide Protection for Consumers

On August 22, the American Bankers Association, the Consumer Banks Association, and the Financial Services Roundtable sent a letter to CFPB Director Cordray regarding the agency’s proposed arbitration rule. According to the Associations, the CFPB’s proposal seeking to impose certain restrictions on the use of mandatory pre-dispute arbitration clauses is inconsistent with the agency’s March 2015 study of consumer arbitration and fails to meet the Dodd-Frank requirements that it provide consumer protection and satisfy the public interest. Arguing that consumers will “truly suffer if the proposed rule becomes final,” the letter highlights the following concerns: (i) due to the “surge” of additional class actions, consumers, as tax payers, will be forced to pay for the increased costs to the court systems; (ii) as litigants, they will face backlogs as court systems experience delays in administering and resolving the class action suits; (iii) as customers of financial service providers, they will be subject to increased prices and/or reduced services because “the billions of dollars in class action litigation costs will be passed through them in whole or in part”; and (iv) consumers will lose the benefits of arbitration, including efficiency, convenience, and fewer costs. The Associations contend that the proposal, if passed, would be particularly restricting for small dollar “non-classable” claims. Read more…

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State Attorneys General Issue Letter in Support of CFPB’s Proposed Arbitration Rule

On August 12, Massachusetts AG Healey, alongside 17 other state attorneys general, sent a letter to CFPB Director Cordray in support of the agency’s proposed rule seeking to impose restrictions on the use of mandatory pre-dispute arbitration clauses by covered providers of certain consumer financial products and services. Although the letter supports the CFPB’s proposed rule, it encourages the CFPB to consider regulations that would prohibit such clauses outright. According to the letter, class action litigation would provide consumers with “real and meaningful benefits,” such as monetary and injunctive relief through settlements, and may further spur industry-wide reforms as well as regulatory and legislative action. The letter further supports the CFPB’s “effort to increase transparency in the arbitration process by requiring covered entities to submit initial claim filings and written awards in arbitration proceedings to the Bureau,” and encourages the agency to (i) publish the information publicly on its website; (ii) enforce timing obligations for reporting the information; and (iii) establish strict penalties, including fines and loss of arbitration privileges, against entities that do not comply with the reporting requirements.

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Department of Education Proposes Rule to Protect Student Borrowers from Alleged Predatory Practices by Postsecondary Institutions

On June 16, the Department of Education’s (Education) proposed rule to amend the regulations governing the Direct Loan program was published in the Federal Register. The proposal seeks to clarify and expand upon existing regulations intended to protect student borrowers from alleged predatory practices by postsecondary institutions. Specifically, Education proposes to amend existing regulations by, among other things, (i) establishing a more accessible and consistent borrower defense standard and streamlining the borrower defense process to ensure protection from institutions’ alleged predatory actions and omissions resulting in loan discharges; (ii) requiring certain institutions provide Education-issued plain language warnings to prospective borrowers and enrolled students on its Web sites and in all promotional materials and advertisements; (iii) prohibiting the requirement to use arbitration to resolve claims brought by a borrower against the school or waivers of his/her right to initiate or participate in a class action lawsuit regarding such claims; and (iv) prohibiting the requirement for students to engage in internal institutional complaints or grievances before contacting accrediting or government agencies with authority over the school regarding such claims. Comments on the proposed rule must be received by Education on or before August 1, 2016.

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Update Regarding CFPB Proposed Rule on Arbitration Agreements

As previously announced, the CFPB published its proposed rule on arbitration agreements in the Federal Register on May 24. To clarify prior summaries, the proposed rule seeks to impose two restrictions on the use of pre-dispute arbitration agreements by covered providers of certain consumer financial products and services. First, the proposed rule would prohibit covered providers from using pre-dispute arbitration agreements to bar consumer class actions in court and would require providers to include a provision in their pre-dispute arbitration agreements reflecting this limitation. Second, the proposed rule would require covered providers to submit certain records related to arbitral proceedings to the CFPB if the covered provider uses pre-dispute arbitration agreements. Comments to the proposed rule must be received by the CFPB on or before August 22, 2016.

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