Earlier this month, the CFPB issued a report titled Strengthening State-Level Consumer Protection.  The report argues, among other things, that states should “[r]evitalize private enforcement” by promulgating additional UDAAP laws and regulations that permit consumers to file “representational and “organizational” actions against companies because the widespread use of arbitration clauses by companies has “severely constrained consumers’ ability to enforce the law.”  The CFPB obviously is still smarting from the fact that in 2017 Congress repealed its final rule that would have prohibited the use of class action waivers in consumer arbitration clauses.  Because the Congressional Review Act does not permit the CFPB to re-issue a rule that is substantially the same as the repealed rule and faced with the possibility that the incoming Trump administration will adopt less aggressive enforcement policies, the CFPB is passing the anti-arbitration baton to the states.  It does so with an increased hostility to arbitration.  While the final rule concluded that arbitration is not per se harmful to consumers or the general public, the CFPB report denigrates arbitration altogether, asserting that it is “forced” on consumers and that arbitral proceedings are conducted “in secret before a private judge the company selected.” 

It is regrettable that the CFPB is urging states to create new ways for consumers to avoid arbitration.  As we have previously observed, the Bureau’s 728-page empirical study of consumer arbitration, issued 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 that 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 last thing consumers need is more statutes and regulations that permit plaintiffs’ attorneys to devour their clients’ monetary recoveries.  Yet the CFPB report urges states to include generous attorney fee shifting provisions in any new representational and organizational legislation.  It is unseemly for the CFPB to give advice to states on how to increase the powers of plaintiffs’ attorneys to bring claims under state law.

Contrary to the CFPB report, arbitration agreements are not “forced” on consumers.  Most agreements provide consumers with an unconditional right to reject the arbitration provision and afford them 30 to 60 days to do so in order to give them time to consult with family, friends or their own legal counsel.  Nor do companies unilaterally “select” the arbitrator.   Consumer arbitrations are typically administered by prominent third-party organizations such as AAA, JAMS or NAM whose rosters are replete with arbitrators who are distinguished members of the bar and retired federal and state court judges.The administrators strictly enforce due process rules that require arbitrators to be neutral and give consumers the same opportunity as companies to select them or object to their appointment.   Finally, while the report criticizes arbitration for being confidential, the CFPB forgets that in the past it has encouraged its own employees to use alternative dispute resolution to resolve workplace disputes precisely because it provides “confidentiality” as well as“faster and less contentious results” than court litigation.

State legislators and regulators should reject the report’s mean-spirited and baseless attack on arbitration and look for opportunities to educate consumers about the many benefits they can derive from arbitrating rather than litigating disputes they have with companies. The CFPB itself is also in a prime position to do so.  It has both the money and the resources to mount a robust arbitration education program, but it has previously lacked the will to do so.  In its Spring 2024 Annual Report to Congress, the CFPB described in detail the resources it has available when it wants to educate consumers:

The CFPB regularly engages in outreach with external stakeholders, including consumer advocates, civil rights organizations, industry, academia, sovereign governments, and other government regulators and agencies to educate or communicate …. The CFPB achieves its educational objectives through publication of proposed and final rules, Advisory Opinions, and interpretive rules; Compliance Bulletins and CFPB Circulars; policy statements; requests for information; press releases, blog posts, podcasts, videos, brochures, social media posts, and website updates; amicus briefs; and reports …. Additionally, CFPB staff deliver speeches, panel remarks, webinars, and presentations …; and participate in smaller meetings and discussions with external stakeholders, including international, federal, sovereign, and state regulators and agencies, industry, academia, and consumer and civil rights organizations. During the reporting period, the CFPB also issued a range of content available to the public and to market participants ….

That was in the context of fair housing issues.  By contrast, the CFPB has never spent a single dollar or devoted a single minute to educating consumers about how they can benefit from arbitrating disputes with companies.  We urge the CFPB in the new administration to have its Consumer Education and External Affairs division put arbitration on the agenda so that consumers receive a more balanced understanding of their dispute resolution options.