Last week, the Consumer Financial Protection Bureau (CFPB) announced that it was considering the introduction of a new regulation banning the so-called free pass arbitration clauses that prevent consumers from filing lawsuits in groups to obtain relief against financial services companies.

Yet Alan S. Kaplinsky, head of the Consumer Financial Services Group at Ballard Spahr LLP, questioned whether the CFPB took its congressionally mandated responsibility a bit too far.

“Congress authorized the CFPB to conduct a study on arbitration in consumer financial services institutions and said that if it found arbitration is not in the public interest, then the bureau has a right to issue a regulation to prohibit it,” he said. “This does not mean they can regulate out of thin air – they can only regulate if their study shows it is necessary to protect consumers. But their own study showed that arbitration is in the public interest and consumers were being protected by it. The regulation they are thinking of issued would be invalid – not because of the Supreme Court cases, but because it was contrary to their study.”

Whether the CFPB moves forward on this potential new rule remains to be seen – Mr. Kaplinsky recently spoke at a Denver-based field hearing sponsored by the bureau to weigh the pros and cons of the matter. And while current law prevents the inclusion of mandatory arbitration clauses in mortgage agreements, the addition of a ban on “free pass” arbitration could bring about a new wave of litigation against lenders and servicers.