On May 5, the CFPB issued proposed rules governing mandatory arbitration clauses that are common in many contracts. The agency said such clauses in contracts prevent consumers – including credit union members – from joining together in a suit to accuse financial institutions of wrongdoing.

The proposal does not prohibit arbitration clauses, but it specifies the language that may be used in clauses and emphasizes the fact consumers can join a class-action suit in court.

Although the generally positive member-credit union relationship assists in resolving disputes, credit unions still find arbitration agreements handy, according to Brad Thaler, vice president of legislative affairs at NAFCU.

"Credit unions have a solid reputation of working with their members to resolve disputes when they arise," Thaler said. "Many credit unions have found that voluntary arbitration agreements are often the most optimal solution for resolving disputes, both in terms of efficiency for the credit union, and fairness for the member."

Credit unions have a long history of consumer protection, CUNA President/CEO Jim Nussle wrote in a letter to a House subcommittee that held a recent hearing on the CFPB's plan.

"However, stacking the cards against credit unions by creating arbitrary regulations, coupled with making it easier for plaintiffs' attorneys to target them with frivolous class action litigation, is not helpful for consumers or those working to serve them," he wrote.

He added credit unions are in a unique position when it comes to arbitration agreements.

"It is hard to imagine a case in which class action litigation against a credit union would be a reasonable course of action for credit union members since it would put them in a position of essentially having to sue themselves, as they are member-owners of the credit union," Nussle wrote.

However, the CFPB said it wants to protect consumers from being locked into such agreements.

"With this contract gotcha, companies can sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers," the agency said in a statement. "The CFPB's proposal is designed to protect consumers' right to pursue justice and relief, and deter companies from violating the law."

The CFPB was required under the Dodd-Frank Act to conduct a study of the arbitration issue before issuing the proposed rules. House Financial Institutions and Consumer Credit Subcommittee Chairman Randy Neugebauer (R-Texas) – no fan of the CFPB – said that study was not sufficiently comprehensive.

"Unfortunately, rather than performing a thorough analysis of arbitration as required by the statute, the bureau instead simply compared arbitration and class actions," he said during the May 18 hearing on the issue. "The bureau failed to adequately compare arbitration programs across the industry, or examine best practices that produced the greatest consumer outcome."

He said he doubts the CFPB has met its statutory responsibility under Dodd-Frank.

"In my view, the proposed rule is a clear error in judgement by the bureau," he concluded.

But F. Paul Bland, executive director of Public Justice, an organization that represents plaintiffs, said the rule will protect consumers from a widespread practice that financial institutions use to protect themselves against private enforcement of consumer protection laws.

"Most people first learn that a company says they have lost the right to sue – and have 'waived' their constitutional right to trial by jury and a day in court – only after a dispute arises," he said. "In most cases, an individual's first awareness of an arbitration clause comes as a bitter surprise."

However, Winger said arbitration clauses in credit union and other contracts have been effective.

"Arbitration has become popular," she said, adding that the Supreme Court has given its approval for the use of arbitration agreements. "There's a lot of precedent in supporting arbitration agreements. It's now a proposed rule. It does create some uncertainty."

In addition to specifying the language that credit unions must use, the proposed rules call for strict reporting requirements.

The rules would require companies that have arbitration clauses to file information regarding awards, claims and other materials that are filed with the agency as part of arbitration agreements. The agency said it may consider making information it would collect in that process public in an effort to allow consumers to monitor the process.

Credit union trade associations said those reporting requirements will cause problems for the industry.

CUNA said it believes the reporting requirements would be helpful to trail attorneys, but not to credit union members. Thaler agreed.

"NAFCU is especially concerned with the proposal to collect and publish arbitration data, as such actions would create system-wide reputational risk, raise privacy concerns and encourage frivolous lawsuits," Thaler said.

Winger said she was surprised by the breadth of the reporting requirements.

"I really didn't expect it to be that broad," she said.

DeVore added he sees the motives behind the proposed rules as somewhat sinister.

"I think this is the CFPB trying to help trial lawyers," he concluded.