To ban or not to ban waivers of a consumer’s right to participate in a class action? U.S. Senate vote underscores policy divide

Last week, the U.S. Senate voted to overturn a recently released Consumer Financial Protection Bureau (“CFPB”) rule that would have prohibited class action waivers from being made part of arbitration clauses inserted by companies into U.S. standard form consumer contracts and terms of service and sale. As reported here, the Senate voted 51-50 to quash the CFPB’s class action waiver rule, with U.S. Vice President Mike Pence breaking a 50-50 tie in favour of nullifying the rule.

Had the CFPB rule stood, companies would have been forbidden from including class action waivers in their U.S. consumer arbitration agreements, preserving the right of consumers to sign on to class action litigation against companies that have used such bans in their consumer contracts and terms of service and sale.

A Look At The Canadian Approach To Consumer Class Action Waivers

In Canada, class action waivers are generally permitted in some provinces but explicitly forbidden in others.

Ontario and Québec – Prohibition on class action waiver

The Ontario Legislature has expressly prohibited the contractual waiver of a consumer’s right to participate in a class action via section 8(1) of the Ontario Consumer Protection Act, 2002, and Québec has done the same via section 11.1 of its Consumer Protection Act.

Alberta and British Columbia, on the other hand, do not have such explicit statutory prohibitions on class action waivers. That said, the courts in those provinces have, in some cases, refused to dismiss or stay class actions brought by consumers that had agreed to arbitration agreements containing class action waivers where there were other grounds to find that the larger arbitration agreement was invalid or unenforceable.

Alberta ­– Waivers permitted if clause approved by minister

Section 16 of Alberta’s Fair Trading Act permits and upholds the use of mandatory arbitration clauses in consumer contracts, so long as approval of the mandatory arbitration clause is granted by the Minister of Service Alberta. The Fair Trading Act does not state whether class action waivers might also be permitted and upheld, but the Minister of Service Alberta and the Alberta Court of Appeal have provided their own guidance on this issue, as set out in the Court of Appeal’s decision in Young v National Money Mart Company, 2013 ABCA 264.

In Young, the Alberta Court of Appeal upheld a lower court’s denial of an application to dismiss or stay a putative class action brought against a money lender by consumers that had agreed in writing to be bound by arbitration clauses, where such arbitration clauses also contained an agreement to not pursue or participate in any class action.

The Court found that the arbitration agreement required ministerial approval under s. 16 of the Alberta Fair Trading Act in order to be valid. Notably, however, the applicant money lender had applied twice to the Minsiter of Service Alberta for approval of its arbitration clauses and was refused both times. In response to the money lender’s 2011 application for approval, the Minister of Service Alberta responded that “ is my ministry’s position that such an exemption would limit consumers’ ability to take court action, including class action, when they have suffered a loss arising from an unfair practice”.

Because the money lender had failed to obtain ministerial approval, the Court of Appeal held that the arbitration clauses were invalid pursuant to s. 16 of the Fair Trading Act. Further, the Court held that the class action waiver clause could not operate to prevent an application by the consumers for class action certification because the Minister of Service Alberta had clearly rejected approval of the entire arbitration clause, including its class action waiver. As the Court stated, “…the legislative choice [via the Alberta Fair Trading Act] was to confer upon the Minister an ability to monitor consumer contracts and to approve only those arbitration and mediation clauses which do not bar class actions and do not frustrate consumer protection legislation”. Because the Minister had refused to approve these arbitration clauses, the Court reasoned that the class action waiver was also invalid.

British Columbia – Waivers permitted if clause does not conflict with consumer protection legislation

We have written previously about the Supreme Court of Canada’s decision in Seidel v Telus Communications Inc., 2011 SCC 15, where the SCC heard an appeal of a British Columbia Court of Appeal decision granting a stay of a putative class action on the basis that the plaintiff’s consumer contract with the defendant contained an arbitration clause, which itself contained a class action waiver. The majority of the SCC partially overturned the decision of the B.C. Court of Appeal in finding that the plaintiff’s claims made pursuant to section 172 of the B.C. Business Practices and Consumer Protection Act (the “BPCPA”) could not be made subject to mandatory arbitration by way of contract given that section 3 of the BPCPA states as follows: “Any waiver or release by a person of the person’s rights, benefits or protections under this Act is void except to the extent that the waiver or release is expressly permitted by this Act”.

The SCC also found that the class action waiver was not severable from the arbitration clause as a whole, and, accordingly, the waiver was also rendered void by section 3 of the BPCPA. Therefore, the SCC held that the plaintiff was not barred from continuing to seek certification of her section 172 claims as a class action.

The reasoning in Seidel has been followed in more recent decisions of the B.C. courts. For instance, in Robinson v National Money Mart, 2013 BCSC 967, the defendants of a putative class action brought an application to stay the proceeding on the basis that the consumer plaintiffs had agreed to an arbitration clause. The Supreme Court of B.C. noted that, similar to Seidel, certain of the plaintiffs’ claims were being brought pursuant to section 172 of the BPCPA, which provides a statutory right to bring an action in the Supreme Court of B.C. for declaratory and injunctive relief in respect of certain consumer transactions. The Supreme Court of B.C. followed the SCC’s Seidel decision in finding that section 3 of the BPCPA rendered void the arbitration agreement in respect of the claims sheltering under section 172.

Notably, the Supreme Court of B.C. dismissed the application for a stay of the class action on the basis of the invalidity of the arbitration agreement under the general provision of section 3 of the BPCPA, without commenting specifically on the fact that, in doing so, the Court was allowing the putative class action to proceed to a certification hearing despite the presence of a class action waiver within the larger arbitration agreement. Presumably the Court agreed with the reasoning in Seidel that the class action waiver in the arbitration agreement could not be severed from the arbitration agreement, and, therefore, the plaintiffs were not barred from continuing to seek certification of section 172 claims as a class action.

The public policy debate regarding class action waivers

The two sides of the debate regarding whether class action waivers ought to be allowed in consumer contracts was illustrated in comments made in the wake of the U.S. Senate vote last week. CFPB Director Richard Cordray issued a statement calling the Senate vote a “giant setback” for consumers that “…robs consumers of their most effective legal tool against corporate wrongdoing”. Conversely, U.S. President Donald Trump issued a statement approving the Senate’s decision as “…standing up for everyday consumers and community banks and credit unions, instead of the trial lawyers, who would have benefited the most from the CFPB’s uninformed and ineffective policy”.

Financial services firms had also been vocal in opposition to the CFPB rule. These firms argued that a ban on class action waivers would only harm consumers, as it would increase the cost of doing business for companies such as credit card issuers and other lenders, which would ultimately lead to an increase in the cost of accessing credit for small business owners and individuals alike.

As we have discussed before here and here, the public policy rationales for enforcing arbitration agreements – including commercial certainty and freedom of contract – are arguably in tension with the Canadian public policy rationales behind class actions – namely, access to justice, judicial efficiency and behaviour modification.

The CFPB may have been motivated to institute its rule in light of the inclination of U.S. courts over recent years to uphold arbitration clauses in consumer contracts so as to preclude class actions. The New York Times reported that in 2014 alone, roughly 83% of cases in the U.S. upheld class-action waivers. Indeed, the U.S. Supreme Court in AT&T Mobility v Concepcion (2011) and American Express v Italian Colors Restaurant (2013) upheld the public policy rationale of enforcing arbitration clauses over the availability of class actions.

With the CFPB rule being voted down last week by the U.S. Senate, the United States, as it stands, continues to be more supportive of class action waivers than are Canadian jursidictions.