The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness has sent a letter to Director Cordray suggesting a series of issues for Mr. Cordray to address in his prepared remarks at the CFPB’s field hearing on arbitration scheduled for this Thursday, May 5.
As the Chamber’s letter notes, the CFPB foreshadowed in the materials given to the SBREFA panel that the CFPB was contemplating a ban on the use of class action waivers in arbitration agreements. The Chamber observes that the CFPB’s final arbitration study did not analyze whether the practical effect of a rule prohibiting class action waivers would be to eliminate the use of consumer arbitration from the consumer financial services market altogether. The Chamber suggests that Director Cordray provide the CFPB’s views on this issue in his prepared remarks.
Among the other issues the Chamber would like Director Cordray to address in his remarks is “how a consumer with a small claim based on unique circumstances would be able to vindicate those legal claims if companies, faced with the need to reserve millions of dollars for class action defense, were to cease subsidizing consumer arbitration programs.” The Chamber notes that under current class action rules, many small claims that involve issues of concern to consumers, such as alleged overcharges or the failure to timely credit a deposit, are unlikely to be classable because they are individualized disputes. The Chamber observes that for such claims, “consumers will therefore have virtually no economically rational options for seeking redress: arbitration (in which most companies pay for consumers to bring claims against them, making it free to the consumer) will be gone; class action litigation will not be available; and rational consumers are not going to pay a $400 filing fee to pursue a $25 claim in court. ”
We note that, in a blog post today, Professor Jeff Sovern commented on the Chamber’s letter, asking whether consumers would “really suffer if they couldn’t bring arbitration claims for $25?” According to Professor Sovern, the CFPB’s arbitration study “found that consumers almost never bring arbitration claims when less than $1,000 is at issue, so the ability to assert small claims in arbitration isn’t worth much.” He asserts that consumers who want to assert $25 claims could still do so in small claims courts.
Professor Sovern’s comments overlook the fact that because the AAA due process protocol requires a carve-out in arbitration agreements for small claims that can be pursued in small claims court. The predicate of the Chamber’s hypothetical example is a one-off individual claim that is not classable because it is not part of a systemic problem involving many consumers. As a result, small claims court is the only recourse for a $25 claim of this kind and not class actions as Professor Sovern suggests.
In addition, the Chamber is likely concerned about non-classable claims that, because they exceed the small claims court limit, are ideal cases to be resolved in arbitration. Neither the CFPB nor Professor Sovern have determined how such cases will be resolved if the result of the CFPB’s rule is the abandonment of consumer arbitration by consumer financial services providers. Without arbitration, consumers with such non-classable claims will lose their only practical recourse.