In a recent blog post, Professor Jeff Sovern contends that the case against consumer arbitration has been bolstered by the fact that a lawyer for the “conservative” Competitive Enterprise Institute made positive remarks about the importance of the Seventh Amendment right to a jury trial in testifying at a House Financial Services Committee hearing. Professor Sovern acknowledges that the hearing dealt with reforming the CFPB and that the testimony in question was made in the context of “objecting to the CFPB’s practice of holding hearings before [administrative law judges] who don’t conduct jury trials and impose penalties and damages on the respondents.” Nevertheless, he claims that the testimony “applies also to arbitration” because “consumers are ordered to pay damages and penalties … without jury determinations.”
The analogy is strained and unpersuasive. While neither administrative law hearings nor arbitration proceedings utilize jury trials, that is the only thing they have in common. In CFPB administrative proceedings, matters are initially decided by an administrative law judge and ultimately by the CFPB Director. In arbitration, disputes are resolved out of court before an arbitrator and jury trial rights are contractually waived. Professor Sovern has taken the witness’s Seventh Amendment remarks out of context to concoct a contrived analogy.
But wait, Professor Sovern argues. He cites a study he supervised in 2014 showing that consumers “don’t really consent to arbitration because they don’t know what they are agreeing to.” However, as we demonstrated at the time, the study was riddled with serious flaws, including the fact that it did not include interviews with consumers who had actually participated in arbitration, it held arbitration clauses to higher standards than other contract terms (which is contrary to U.S. Supreme Court precedent interpreting the Federal Arbitration Act), and it did not inquire into consumer understanding of class action litigation as compared to individual arbitration.
These omissions were material because surveys by Ernst & Young and Harris Interactive concluded that most consumers who actually participated in arbitration were satisfied with the process and an empirical study of consumer arbitration by the Northwestern University School of Law showed that arbitration was a faster, simpler, and cheaper way of resolving consumer disputes than going to court. Subsequent studies of consumer arbitration—including the CFPB’s 728-page empirical Study issued in 2015 and more recent studies by the U.S. Chamber of Commerce—have confirmed that individual arbitration is far more beneficial for consumers than class action litigation.
Dusting off the old study does not help Professor Sovern. It did not prove anything then, and it is even less persuasive now.