In its final arbitration rule issued on July 10, 2017, the CFPB responds to our calculation, made when the proposed rule was issued in May 2016, that the rule will cause 53,000 providers who currently use arbitration agreements to incur between $2.6 billion and $5.2 billion over a five-year period to defend against an additional 6,042 class actions. Those numbers are expected to be repeated every five years.

The CFPB acknowledges the accuracy of our calculations except that it disagrees that $5.2 billion “ is a reasonable upper bound.”  In both the proposed rule and the final rule, the CFPB calculated the costs associated with additional federal court class actions to be $2.6 billion, and estimated that there will be an equal number of additional state court class actions.  As it did in the proposed rule, however, the CFPB states that “it does not have reliable data to estimate the cost of additional State class actions.”  While the CFPB “acknowledges again that the total additional litigation costs to providers will exceed costs from Federal class actions” when the state class actions are accounted for, it believes that the state class actions will not add an additional $2.6 billion to the calculation, although it is unable to estimate what the upper bound number should be.

We arrived at the $5.2 billion estimate as follows:  In the proposed rule, the CFPB concluded that there would be as many additional state court class actions as federal court class actions.  (“Based on the Study’s analysis of cases filed, the Bureau believes that there is roughly the same number of class settlements in state courts as there is in Federal courts across affected markets.”)  They monetized the additional federal cases as $2.6 billion.  They estimated that the state court costs would be lower but were unable to monetize them “because limitations on the systems to search and retrieve state court cases precluded the Bureau from developing sufficient data on the size or costs of state court class action settlements.”  However, the CFPB also stated that they were not including the cost of providing in-kind relief, because they could not quantify it, and also were not including the cost of providing injunctive relief, which “could result in substantial forgone profit (and a corresponding substantial benefit to the consumers), but cannot be easily quantified.”  They further noted that “for several markets the estimates of additional Federal class action settlements are low.”  Looking at all of these factors, including the “substantial forgone profit” that the CFPB did not include, it was reasonable to project $5.2 billion as the maximum cost of federal and state court cases combined.  We were merely estimating that the combined cost of additional federal and state class actions would be somewhere between $2.6 billion and $5.2 billion based on the CFPB’s calculations and analysis.  (Of course, it might even be more than $5.2 billion).

We believe our calculations are consistent with the CFPB’s in that everyone estimates that the cost to providers from additional federal and state court class actions will exceed $2.6 billion.  The only disagreement is on the amount of the excess.  Given the CFPB’s belief that there will be as many additional state court class actions as additional federal court class actions, and the CFPB’s omission of other relief that will impose “substantial” costs on providers that the CFPB could not calculate, we continue to believe that $5.2 billion is a reasonable upper bound.  The CFPB disagrees, which it is certainly entitled to do.  In fact, we hope that if the rule is implemented, it does not cost providers an additional $5.2 billion every five years.  Unfortunately, even the lower bound estimate of $2.6 billion will exact a very heavy and unnecessary toll on providers but do little, if anything, to help consumers. Only their lawyers will benefit.