In a new American Banker article, Alan Kaplinsky, Practice Leader of Ballard Spahr’s Consumer Financial Services Group, responded to an article by Professor Jeff Sovern that called into question Alan’s prediction that the CFPB’s proposed plan to ban class action waivers in consumer arbitration agreements will cause companies to abandon arbitration completely.

In the article, Alan restated his opinion that the CFPB’s proposal would dramatically change firms’ cost-benefit analysis enough to convince them to stop using arbitration for individual claims as well.  Professor Sovern suggested in his article that a total abandonment of arbitration by financial services companies would be a non-event because the evidence points to few individual arbitrations occurring in the first place. Alan pointed out that, in fact, there have been thousands of individual arbitrations in recent years.  He noted that the CFPB’s own study on arbitration clauses examined 1,847 of them alone from just one administrator, the American Arbitration Association.  Alan also observed that but for the steady stream of negative publicity about arbitration generated by plaintiffs’ class action lawyers and consumer advocates, there likely would have been even more individual arbitrations.

Alan noted that he has urged the CFPB to direct its consumer education and engagement division to educate consumers about the benefits that arbitration can provide, although it has declined to do so.  He also noted that under the rules of the two leading consumer arbitration administrators, the American Arbitration Association and JAMS (formerly known as Judicial Arbitration and Mediation Services), the cost to the consumer for small-dollar claims in arbitration is capped at $200 and $250, respectively.  The company is required to pay the remainder of the administrative and arbitrator fees, which typically amounts to several thousand dollars.

Alan commented that companies are willing to bear that extra expense to resolve individual consumer disputes if they are not also required, at the same time, to incur the extraordinary cost and burden of defending class actions.  He concluded the article by rejecting Professor Sovern’s suggestion that companies deserve to be criticized if they decide to abandon arbitration altogether if they are prohibited from using class action waivers.