Professor Jeff Sovern responded to our blog criticizing his proposal for a new CFPB arbitration rule by asserting that his proposed rule is not substantially the same as the prior CFPB rule that Congress vetoed and, therefore, the Congressional Review Act would not bar its promulgation. According to Professor Sovern: “I don’t see how my rule giving consumers a choice to opt in to arbitration clauses, which could include class action waivers, could be substantially the same as the earlier rule which blocked consumers and companies from agreeing to class action waivers.”
In reality, however, the effect of Professor Sovern’s proposed rule would be substantially the same as the CFPB rule. It may be dressed in sheep’s clothing, but it is the same wolf. Much like the CFPB Rule, the ultimate goal of Professor Sovern’s proposed rule is to allow consumers to bring class actions against companies. The now-defunct CFPB rule sought to achieve this in a straightforward manner by prohibiting class action waivers in arbitration agreements. Professor Sovern’s proposed rule seeks to achieve the same end by more indirect means, namely, by (a) disallowing companies from entering into consumer arbitration agreements unless the consumer opts in, while (b) overtly discouraging consumers from opting in by requiring companies to disclose on the first page of the contract in big print that the CFPB “recommends that you NOT sign below” and to read the opt-out aloud to the consumer. Professor Sovern candidly acknowledges the goal of his proposed rule is to make sure that “enough consumers didn’t opt in so that class actions would make economic sense.”
There you have it. The whole point of Professor Sovern’s proposed rule is to preserve and promote consumer class actions, just like the CFPB rule that Congress overrode. His comment that a class action waiver “could” be included in an arbitration agreement that a consumer opts into is simply illusory, since his proposal is designed to heavily rig the contracting process to ensure that consumers do NOT opt in.
Professor Sovern’s proposal is different from the CFPB rule in one respect. As we previously discussed, a consumer who does not opt in would not be a party to any arbitration agreement. But the CFPB rule would have allowed a consumer to enter into a predispute arbitration agreement that did not contain a class action waiver. That distinction obviously does not help Professor Sovern, since his proposal directly contradicts the conclusion of the CFPB and its 735-page empirical study that arbitration is not per se harmful to consumers or the general public. That in itself should dissuade the CFPB from acting on Professor Sovern’s proposal.
Finally, Professor Sovern does not quarrel with our showing that the CFPB’s own data confirm that consumers fare much better in arbitration than they do in class action litigation. Still, he derides our showing as an “industry talking point” that is “deceptive” because “consumers rarely seek to arbitrate.” But why aren’t there more consumer arbitrations? Precisely because consumer advocates like Professor Sovern and the plaintiffs’ class action bar for years have poisoned the well by repeatedly denigrating arbitration as an unfair and abusive practice – even though the statistics show otherwise. And, the CFPB itself, which encouraged its own employees to use alternative dispute resolution because it produces “faster and less contentious results,” has failed to educate the public – its very constituency – on the many benefits of arbitration. That’s what the CFPB should expend its resources on.