In a recent blog post, Professor Jeff Sovern responded to our blog post indicating that the CFPB’s March 10, 2014 Arbitration Study strongly supports the industry’s view that consumers fare better in arbitration than litigation in general and class actions in particular.  Among other things, we showed that consumers who prevailed in arbitration recovered an average of $5,389, compared to the $32.35 obtained by the average class member in class action settlements.  Even the average amount recovered by consumers in individual federal court litigation ($5,245) dwarfs the $32.35 received by the average class member.

Professor Sovern does not quarrel with these statistics.  (Nor does he take issue with our numerous other comments concerning the Study.) He merely argues that very few consumers file arbitration claims for small-dollar amounts and, therefore, class actions are needed to protect those consumers with small-dollar claims.  “For example,” he notes, “there are almost no disputes over amounts less than $1,000.”  But Professor Sovern disregards the numerous reasons that explain why that is the case.

First, the vast majority of customers resolve their disputes with businesses informally without the need for arbitration or litigation.  The CFPB itself has provided a portal through which financial services companies informally resolved more than 558,000 alleged customer complaints in the past three years.  Each alleged complaint resolved obviated the need for the customer to commence an arbitration proceeding.

Second, government enforcement and supervisory actions have eliminated much of the need for customers to bring private arbitration actions.  The Arbitration Study was based on incomplete data concerning the CFPB’s regulatory and supervisory actions.  The Study examined such actions only through December 31, 2012, while the CFPB did not report its first enforcement action until July 2012, and it reported 47 enforcement actions in 2013, 2014 and early 2015.  Indeed, in early August 2015 the CFPB’s website stated that “[a]s of July 15, 2015, CFPB enforcement activity has resulted in over $10 billion in relief for more than 17 million consumers.”

Third, individuals are turning increasingly to on-line arbitration and mediation resources to resolve small dollar customer complaints, which the CFPB chose not to include in the Study.  For example, in comments submitted to the CFPB when it initially proposed the Study, Modria, one of the leading companies offering online arbitration and dispute resolution services, stated that it handles more than 60 million disputes a year.  Even if only a fraction of the disputes handled by Modria involve consumer financial services companies, it is obvious that the universe of customer disputes being addressed outside the courtroom is much larger and diverse than just the American Arbitration Association database examined in the Study.  And, Modria is only one of many online dispute resolution services.

Notably, Professor Sovern admits that the CFPB, notwithstanding its three-year effort and 728-page study, did not “gather much information about class action claim amounts” recovered by individual consumers.  This underscores our contention that the CFPB is in no position to adopt a rule regulating consumer arbitration agreements or eliminating class action waivers, since without an apples to apples comparison of how consumers fare in arbitration and class action litigation, the CFPB cannot show that such regulation is in the public interest or necessary to protect consumers.