Recently, Professor Jeff Sovern criticized Senator Tom Cotton of Arkansas for announcing that he would seek to block the CFPB’s final arbitration rule using the Congressional Review Act. Professor Sovern quoted Senator Cotton as stating that the rule “‘ignores the consumer benefits of arbitration and treats Arkansans like helpless children, incapable of making business decisions in their own best interests ….’” According to Professor Sovern, this rationale for opposing the rule is flawed because consumers are generally not aware of the arbitration clauses in their financial contracts and “don’t understand” them. Moreover, he asserted, “[i]f we were to take Senator Cotton’s logic to its extreme, we wouldn’t require prescriptions for medications, because after all, requiring prescriptions assumes patients are incapable of making medical decisions in their own best interests. We wouldn’t require cars to be safe, because such requirements assume consumers can’t make decisions about whether they want a safe car or not.”
Professor Sovern is missing the point. If consumers — notwithstanding the near universal legal principle that people are legally responsible for understanding the contracts they enter into — are not aware of the arbitration clause in their financial contracts, it is because other features of the contract (for example, interest rate, fees, etc.) are more immediately important to them. And, if consumers “don’t understand” arbitration clauses — notwithstanding that most financial services providers strive to make them as consumer-friendly and understandable as possible — it is because the CFPB has forsaken its responsibility to help educate consumers about arbitration. We have urged the CFPB for the past several years to have its Consumer Education and Engagement division educate consumers about the relative costs and benefits of arbitration and litigation, particularly class action litigation. Regrettably, it has steadfastly refused to do so.
It is not that educating consumers about arbitration is impossible or even difficult. The CFPB itself has gone to great lengths to educate its own employees about the use of alternative dispute resolution to resolve workplace disputes. And, just a few days ago, Consumer Reports published an article directed to consumers titled, “How to Make Arbitration Work in Disputes With Your Bank.” The bottom line is that the CFPB made a policy judgment that consumers are better off learning about class actions rather than arbitration.
In the final rule, the CFPB stated that it “is skeptical as to whether it is realistic to believe that all or most consumers could be educated about the terms of arbitration agreements to significantly improve consumer attitudes or awareness.” Yet at the same time that it issued the final rule, the CFPB released a video on YouTube titled, “CFPB’s New Arbitration Rule: Take Action Together.” The video urges consumers to “[w]atch to see how the CFPB’s new rule will ban mandatory arbitration clauses that deny groups of people their day in court. Many consumer financial products like credit cards and bank accounts have clauses in their contracts that prevent consumers from joining together to sue their bank or financial company for wrongdoing. The new rule will deter wrongdoing and allow consumers to pursue justice and relief by prohibiting companies from using arbitration clauses to block group lawsuits.”
In terms of education, the CFPB unconscionably made no effort at all to educate consumers about arbitration — except to convey the message that they are bad — and completely tilted the playing field in favor of class actions. Hyperbolically analogizing arbitration clauses to medical prescriptions and car safety does nothing to gloss over that unfortunate fact.