Ballard Spahr Senior Counsel Alan S. Kaplinsky and Mark J. Levin, and David Sherwyn, Professor of Law at Cornell University’s School of Hotel Administration, submitted lengthy comments to the Consumer Financial Protection Bureau opposing the recent petition filed by consumer advocates urging the CFPB to undertake rulemaking that would prohibit the use of pre-dispute arbitration clauses in consumer contracts in favor of arbitration clauses that would permit consumers to choose between arbitration and litigation only after a dispute has arisen.   

Although consumer advocates are engaged in an all-out effort to get the CFPB to adopt their proposed regulation, the comments submitted by Attorneys Kaplinsky and Levin and Professor Sherwyn show that their proposed rule is bad for consumers, bad for companies, bad for the judicial system, and bad for the U.S. economy.  As discussed in detail in the comments:

• the proposed rule is prohibited by the Congressional Review Act (CRA) because it is substantially the same as the final arbitration rule promulgated by the CFPB in July 2017, which Congress overrode under the CRA on November 1, 2017;
• petitioners’ argument that rulemaking is necessary because consumers lack informed consent and are forced to arbitrate is based on unacceptable policy positions that create a moral hazard and run counter to bedrock contract principles and the Federal Arbitration Act;
• as a practical matter, research by Professor Sherwyn and others shows that post-dispute arbitration would fail to resolve consumers’ disputes because, in the real world, it is almost never utilized; and
• The proposed elimination of pre-dispute arbitration agreements will harm consumers, businesses, the courts, and the economy.

In short, the comments by Messrs. Kaplinsky and Levin and Professor Sherwyn demonstrate that the CFPB’s earlier (vetoed) rule and the rule advocated by petitioners have the exact same goal: the elimination of consumer arbitration agreements containing class action waivers—even though the CFPB itself has acknowledged that individualized arbitration is faster, cheaper and more beneficial to consumers than class action litigation—so that thousands of new class actions can be filed.  That would benefit only the lawyers for the class, not the consumer class members that the CFPB is statutorily charged with protecting, would burden companies and the economy with billions of dollars in additional litigation costs and would clog the courts. 

The comments also submit the following documents to the CFPB:

• “Consumer Advocates Petition CFPB to Undertake Rulemaking to Prohibit ‘Pre-dispute’ Consumer Arbitration Clauses,” published by Messrs. Kaplinsky and Levin on September 15, 2023 on Ballard Spahr’s blog, Consumer Finance Monitor;
• Transcript of Consumer Finance Monitor Podcast episode analyzing the petition and proposed rulemaking, recorded by Messrs. Kaplinsky and Levin and Professor Sherwyn on November 3, 2023.  (The recording of the episode will become live when it is released on Thursday November 16.  Please note that if the recording link is clicked before the episode becomes live, the message “Page Not Found” will appear); and
• Because It Takes Two: Why Post-Dispute Voluntary Arbitration Programs Will Fail to Fix the Problems Associated with Employment Discrimination Law Adjudication, published by Professor Sherwyn in the Berkeley Journal of Employment and Labor Law (2003).   

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