On March 10th, the CFPB held a public field hearing in Newark, New Jersey to address the release of its arbitration report to Congress. The event featured opening remarks from Director Richard Cordray, as well as commentary from consumer groups, industry representatives and members of the public. According to Director Cordray, the report was based on the CFPB’s review of:

  • 852 consumer finance agreements;
  • 1800 consumer finance arbitration disputes;
  • 3500 individual consumer finance cases that were filed in federal court;
  • 562 consumer class action lawsuits that were filed in federal and “selected” state courts;
  • 30,000 small claims filings; and
  • 400 consumer finance class action settlements in federal courts over a 5 year period.

Additionally, the CFPB conducted a national telephone survey of over 1,000 credit card holders to “learn about their knowledge and understanding of arbitration and other dispute resolution mechanisms.” Among other things, the CFPB found that only 2% of consumers surveyed said that they would consider bringing formal legal proceedings against their credit card issuer if they were unable to retain relief through the company’s own channels. Three out four of the consumers surveyed did not know whether they were subject to an arbitration clause.

After Director Cordray’s remarks, the guest panelists were introduced and invited to share their initial observations of the report. Alan Kaplinsky started the panel discussion by noting that most consumers are able to resolve their disputes by using the company’s helplines, informal dispute resolution procedures, or via third party intervention such as the Better Business Bureau or the complaint portals that are maintained by the CFPB and most State Attorney Generals. Kaplinsky also noted that the Bureau failed to interview consumers who have actually participated in arbitration, and, as such, consumer satisfaction, a central tenet of the Bureau was completely ignored here. The next panelist, Dong Hong, Vice President, Regulatory Counsel of the Consumers Banking Association (“CBA”), highlighted that arbitration is cheaper and faster than litigation and that consumers generally obtain a better outcome than in litigation. Louis Vetere, President and CEO of Garden Savings Federal Credit Union, opined that his credit union is in favor of arbitration; however, it would not mandate it. Unlike other financial institutions, credit unions hardly ever get sued, and are member owned and do not have to answer to stockholders or investors.

Opponents of arbitration clauses were also represented on the panel. Jane Santoni, a Maryland private consumer protection lawyer, conceded that in every arbitration she has been a part of, the arbitrator has given something small to her client. However, according to Santoni, the same arbitrators refused to find that the corporation violated a consumer protection law or acted fraudulently. Professor Myriam Gilles of Cardozo University noted that one thing the empirical evidence that forms the basis of the report fails to consider is what happens to the development of consumer common law if all consumer cases are arbitrated. Finally, Paul Bland, Executive Director of Public Justice, argued that mandatory arbitration provisions prevented consumers from protecting themselves, particularly as lenders move their services online, making arbitration provisions less visible on websites.

The event concluded with comments from the members of the public.

On March 18, 2015, Ballard Spahr attorneys will hold a webinar “The CFPB’s Arbitration Study: Where Do Things Go From Here?” from 12 p.m. to 1 p.m. ET. More information and the registration form are available here.