In his remarks today to the CFPB’s Consumer Advisory Board, Director Cordray denigrated arbitration agreements as a “free pass” that allows companies to “sidestep the legal system, avoid big refunds, and continue to pursue profitable practices that may violate the law and harm consumers on a large scale.” He also repeated the CFPB’s claim that class actions “can result in substantial relief for many consumers and create the leverage to bring about much-needed changes in business practices.”
As we have previously commented, Director Cordray’s remarks are not supported by the data in the CFPB’s arbitration study. That data demonstrates that most consumers derive no benefit from class action litigation. The threat of a class action (presumably the “leverage” Director Cordray is referring to) adds nothing but a huge layer of expense in defending these largely meritless lawsuits, benefiting only plaintiffs’ attorneys.
We firmly believe that, should the CFPB enact its proposal to ban class action waivers, most companies will abandon arbitration with the result that arbitration will no longer be available as a quick, efficient and inexpensive way of resolving disputes. (Indeed, Director Cordray’s suggestion that the threat of class action litigation is needed to bring companies into compliance seems to marginalize the CFPB’s role in ensuring compliance through its significant supervisory and enforcement authority.)
Moreover, as I suggested when I represented industry at the CFPB’s field hearing on arbitration earlier this month, arbitration could serve as a helpful complement to the CFPB’s complaint portal. More specifically, arbitration could be used to resolve those disputes that are not resolved through the complaint process. Director Cordray appears willing to give up the potential consumer benefits that arbitration could bring to the CFPB’s complaint process to preserve the class-action device which provides virtually no benefit to consumers.