The Pew Charitable Trusts has released an issue brief, “Consumers Want the Right to Resolve Bank Disputes in Court,” in which it urges the CFPB to “expeditiously finalize” its proposed arbitration rule.  The CFPB’s proposal would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service.  The issue brief is an update to Pew’s 2015 “Checks and Balances” in which Pew pressed the CFPB to write new overdraft and other rules for checking accounts and eliminate binding arbitration provisions from checking account agreements.

The findings set forth in the issue brief are based on Pew’s (1) “nationally representative random-digit-dialing telephone survey of 1,008 adults on their attitudes toward arbitration and dispute resolution alternatives” conducted in November 2015, and (2) examination from 2015 to 2016 of “the disclosure boxes, fee schedules, and account agreements” for basic checking accounts used by “44 of the 50 largest banks based on domestic deposit volume as tabulated in June 2015 by the [FDIC].”

Pew’s findings include the following:

  • Pew states that “[e]ach year since 2013, Pew has evaluated the dispute resolution policies and practices disclosed by the 50 largest retail banks in the U.S.”  Pew found that among the 29 banks common to its four annual studies, the percentage of banks with an arbitration clause has risen from 59 to 72 percent, with nearly three-quarters of the 44 banks studied in 2016 using an arbitration provision.
  • Among the 29 banks common to all of Pew’s studies, the percentage of banks with class action waivers has risen from 52 to 66 percent since 2013, with nearly three-quarters of the 44 banks studied in 2016 using a class action waiver.
  • 95 percent of consumers want to be able to have a dispute with their banks heard in court.
  • Almost 9 in 10 consumers want to be able to participate in a group lawsuit.
  • 23 percent of consumers if faced with an issue at their bank would definitely take legal action.

Pew’s issue brief is flawed in numerous ways.  Pew states that the CFPB’s arbitration study and Pew’s poll “make clear that, in most cases, consumers would not take individual legal actions over a dispute but want the right to join class actions to hold companies accountable.”  Pew ignores, however, the critical fact that the CFPB’s study does not support the proposed rule.  The data in the CFPB’s study showed that individual arbitration is far more beneficial for consumers than class action litigation.  Had those data been part of Pew’s survey questions, they would have gotten a completely different result.  For example, if consumers had been asked, “If you had a dispute with your bank, and could choose between (A) going to arbitration and, if you won, recovering an average of $5,400 a few months after the arbitration started, or (B) being part of a class action in court in which 87% of the class members would never recover anything, while the remaining 13% would recover an average of $32 as part of a class settlement  after waiting for two or more years,” Pew would have found that consumers prefer arbitration to class action litigation and would not be urging the CFPB to finalize its proposed arbitration rule.

In addition, like the CFPB in conducting its study, Pew failed to survey consumers who have actually been through arbitration.  In April 2005, Harris Interactive released the results of an extensive survey of arbitration participants sponsored by the Institute for Legal Reform at the U.S. Chamber of Commerce.  That survey found high levels of satisfaction with the arbitration process among consumers who had actually participated in an arbitration.

In its conclusion, Pew states that “[c]lass action, in particular, is a cost-effective dispute resolution option”  but cites no authority for this bald, conclusory statement.  Once again, the statement is belied by the results of the CFPB’s arbitration study, which showed class actions to be a very costly and inefficient way of vindicating consumer rights.  87% of the class members received no relief whatsoever and of the 13% who received any relief, the average recovery was a paltry $32.35.  Pew also ignores the extraordinary burden on the court system and costs on the industry to defend class actions.  The CFPB itself has estimated that its proposed rule, if finalized, will cause 53,000 providers who currently utilize arbitration agreements to incur between $2.62 billion and $5.23 billion in costs on a continuing basis in defending against an additional 6,042 class actions that will be brought within the first five years after the rule becomes effective.  Since these costs will be passed through to consumers in whole or in part, consumers will suffer in the form of higher prices and/or reduced services and the plaintiffs’ class action bar will be the only beneficiaries of the CFPB’s rule.  It is very disappointing that Pew seems to be more concerned about the economic well-being of plaintiffs’ lawyers than of consumers themselves.

As noted above, based on its survey, Pew found that “almost 90% of consumers want the right to participate in class-action lawsuits against their banks.”  This finding is based on survey participants’ responses to the following statements:

I am going to describe a situation to you, and then ask how you would respond.  Imagine that you looked at your bank account statement and noticed that your bank had been charging you a fee for a service that you are sure you did not sign up for.  They may have been charging you this fee for a while now.  You called the customer service line, but the bank refused to do anything about the fees.  I am going to read you a list of legal options for what to do next in this situation.  For each tell me if you should or should not be allowed to do each of the following.”

Pew’s hypothetical scenario is flawed in that it assumes that the bank overcharge was a systemic issue affecting a class of consumers.  In fact, most overcharges are one-off unique events which are not amenable to class action treatment.

In describing the CFPB’s authority to promulgate an arbitration rule, Pew misstates what Section 1028 of the Dodd-Frank Act provides.  According to Pew, Dodd-Frank “authorizes the CFPB to limit or ban provisions in account agreements that restrict access to class-action litigation.”  This statement is inaccurate in three respects. First, Section 1028 directs the CFPB to conduct an arbitration study.  Second, it authorizes the CFPB to limit or ban pre-dispute arbitration agreements, not class action waivers.  Third, it only authorizes the CFPB to limit or ban pre-dispute arbitration agreements under prescribed conditions, namely if, based on its arbitration study, the CFPB finds doing so “is in the public interest and for the protection of consumers.”

We also question the significance of Pew’s finding regarding the increase in the percentage of large banks using arbitration provisions over four years.  Unless and until the CFPB issues a final rule that becomes effective, banks continue to have the legal right to adopt arbitration provisions. Based on Pew’s findings, 28 percent of the largest banks common to its four year study are not using arbitration.  And, of course, an even greater percentage of smaller banks do not use arbitration.  Nothing restricts the right of a consumer who does not like arbitration to change the bank he or she uses to one that does not use arbitration.

Finally, we have previously commented on the CFPB’s failure to devote any resources to educating consumers about the pro’s and con’s of arbitration and litigation, particularly class action litigation.  Like the CFPB, Pew has also devoted no resources to educating consumers about different dispute resolution methods.