In a recent “open letter” to newly confirmed CFPB Director Rohit Chopra, Professor Jeff Sovern asks the agency not to forget about “arbitration” as it implements its regulatory agenda. He argues that “[p]re-dispute arbitration clauses remain a serious limit on consumer protection” and can even “blow up their lives.”
That’s poor advice, Professor Sovern, and hyperbole is no substitute for facts. The CFPB’s earlier attempt to regulate consumer arbitration took five years and was ultimately unsuccessful, in large part because its 728-page empirical study of consumer arbitration, completed in March 2015, showed that arbitration is faster and less expensive than class action litigation and results in greater recoveries for consumers. In particular, the CFPB found, consumers who prevailed in an individual arbitration recovered an average of $5,389, and the entire arbitration process was concluded in an average of 2-7 months. By contrast, consumers who received cash payments in class action settlements got a paltry $32.35 on average after waiting for up to two years, while their lawyers recovered a staggering $424,495,451. The CFPB further concluded that arbitration is not per se harmful to consumers or the general public, and it has even encouraged its own employees to use alternative dispute resolution to resolve workplace disputes because it provides “faster and less contentious results” as well as “confidentiality.”
That consumers fare better in arbitration than in court is further confirmed in a November 2020 study by the U.S. Chamber Institute for Legal Reform of more than 100,000 consumer disputes that terminated between January 1, 2014 and June 30, 2020. The study found (as did the CFPB) that arbitration is faster and less expensive than litigation, consumers are more likely to win in arbitration than in court and consumers receive higher awards in arbitration than in litigation.
We do join Professor Sovern in congratulating Director Chopra on his confirmation. However, our advice is that the CFPB should not waste its resources and the next five years trying to fix something that isn’t broken, as shown by its own data. Instead, we urge the CFPB to spend its resources educating consumers about the many benefits of arbitration. That is the investment of time and money that would help “prevent consumers from making poor choices.”