We previously reported and released a podcast episode on comments that we and Professor David Sherwyn of Cornell University submitted in opposition to the Petition for Rulemaking filed by a number of consumer advocacy groups urging the CFPB to prohibit pre-dispute consumer arbitration clauses and allow only post-dispute clauses. Among other things, we argued that the rule proposed by the Petitioners would be 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 that Congress overrode in November 2017. We further argued, based upon Professor Sherwyn’s ground-breaking empirical study of post-dispute arbitration clauses, that such clauses do not work in real-life situations because it is virtually impossible for both sides to agree to arbitrate after a dispute has arisen.

Most of the 31 comments that were submitted to the CFPB supported the Petition, but none of them showed that post-dispute arbitration clauses actually work in the real world. To assert that only post-dispute arbitration should be permitted—when the result is that no arbitrations take place—reveals that the true goal of the Petitioners and their acolytes is to eliminate consumer arbitration altogether so that class actions can flood the courts. The comment letter submitted by Professor Jeff Sovern and a host of other academicians (hereinafter, “the Sovern letter”) makes no effort to hide this. They argue that the proposed rule would restore to consumers the “right to band together with other injured consumers ….” Hold on. Isn’t that precisely what the CFPB’s Final Arbitration Rule, which the Sovern letter states was “motivated by a desire to enable consumers to seek resolution of disputes in class actions,” was intended to accomplish? If that is not what the CRA means by prohibiting a new rule that is “substantially the same” as the earlier repealed rule, then what is?

Supporters of the Petition nevertheless argue that the proposed post-dispute arbitration rule differs substantially from the CFPB’s 2017 rule because the focus of the proposed rule is consumer understanding of arbitration clauses, while the rule that Congress disapproved was limited to prohibiting class action waivers. But that argument fails because the end game is the same: allow consumers to bring class actions. This is made clear in a separate comment letter submitted by Professor David Vladeck of Georgetown Law School, which argues:

Six years after the 2017 study, the secrecy and unfairness of forced arbitration continues to harm consumers and deprive them of statutory rights. Forced arbitration enables lenders to skirt accountability …. The CFPB understands that consumers do not voluntarily sign up for forced arbitration and collective action bans. And the CFPB understands that if consumers were given a choice between mandatory arbitration and the accompanied broad waivers of statutory rights, on the one hand, and on the other hand, the freedom to choose to band together to seek redress, consumers would overwhelmingly reject forced arbitration. The CFPB’s study drives that point home, and recent research only fortifies that conclusion.

The Sovern letter further argues that the proposed rule is “markedly different” than the earlier rule that Congress disapproved because the proposed rule would also cover “individual actions that would not have been affected by the 2017 rule.” However, this alleged difference is purely cosmetic since, according to the Sovern letter, “shockingly few consumers actually arbitrate their claims.” The real goal of the proposed rule is to clear the way for plaintiffs’ lawyers to file the 6,000+ class actions that the CFPB predicted would be brought had the 2017 rule not been disapproved by Congress. Underlying the proposed rule is the same antipathy to AT&T Mobility v. Concepcion as the old rule, which, the Sovern letter states, “was motivated by a desire to enable consumers to seek resolution of disputes in class actions.” Professor Vladeck’s comment letter leaves no doubt that the target of the proposed rule is the same target that motivated the CFPB’s 2017 rule—nullifying the Supreme Court’s Concepcion decision:

[T]he CFPB dutifully undertook a massive study of the use of forced arbitration and class action bans …. The study’s results were both predictable and discouraging. There were virtually no low-dollar claims (claims under $1,000.00). The reason, of course, was the Supreme Court’s decision in AT&T v. Concepcion, 563 U.S. 333 (2011). The Court for the first time held that, despite state laws holding otherwise, the Federal Arbitration Act permitted companies to ban consumer class actions within forced arbitration clauses, thereby further undermining the ability of consumers to seek accountability for illegal corporate actions. Post-Concepcion, no lawyer would bother taking a low-dollar claim to forced arbitration, because the system is so tilted against the consumer that achieving a just result often is impossible. The absence of these cases simply underscores that the collective action ban does little more than insulate companies from responsibility for wrongdoing …. The CFPB’s rule never took effect because the Wall Street banks and U.S. Chamber of Congress urged Congress to disapprove of the rule.

The Sovern letter also argues that the proposed rule is not substantially the same as the CFPB’s 2017 rule because the old rule “addressed only class action waivers” whereas the proposed rule “would address the lack of consumer consent to arbitration.” But that is not the case. As we pointed out in our comments, when the CFPB promulgated its earlier rule it “explored in detail consumer comprehension issues with respect to arbitration agreements” (the CFPB’s words) based on its own national telephone survey of credit card holders, and it disagreed with commentators who argued that even more research on consumer comprehension should be undertaken. The Sovern letter acknowledges that “the CFPB’s own study of consumer comprehension of arbitration clauses found that few consumers understood that arbitration clauses prevent them from suing in court.” Likewise, a comment letter submitted by the American Association for Justice acknowledges that “[t]he lack of informed consent to forced arbitration was a concern highlighted in the CFPB’s 2015 study .… [T]he CFPB’s 2015 findings … concluded that most consumers have no idea they are subject to forced arbitration.”

And, Professor Vladeck’s comment letter acknowledges that the more recent studies of consumer comprehension of arbitration clauses simply reach the same conclusion that the CFPB reached in its 2015 empirical study and Final Arbitration Rule: namely, that “the vast majority of consumers are unaware that they are subject to forced arbitration [and] have no understanding of the impact of pre-dispute clauses.” Professor Vladeck argues that the proposed rule is different because academic studies undertaken after the CFPB’s 2015 study show that “[t]he lack of informed consent to forced arbitration … still remains,” but that does not support the conclusion that the proposed rule is substantially different than the old one. If anything, it confirms that the proposed rule is substantially the same as the earlier one and that there is nothing new that would justify re-plowing the same ground again.

The Sovern letter further argues that “no evidence exists that anyone has been able to construct [an arbitration clause] that the average consumer can understand” and that “[f]or all that arbitration clauses convey to consumers, they might as well be written in a language that no one understands.” However, as we pointed out in our own comments, most companies do make a concerted effort to educate consumers about arbitration and disclose the differences between arbitration and litigation. And they do so in plain English, often at the very outset of the contract and within the arbitration clause itself. To take but one example, the arbitration provision in a bank’s deposit agreement states as follows, using all caps and boldface type:

WAIVER OF JURY TRIAL AND ARBITRATION PROVISION. READ THIS ARBITRATION PROVISION CAREFULLY. IF YOU DO NOT REJECT ARBITRATION IN ACCORDANCE WITH SUBPARAGRAPH (a) BELOW, THIS ARBITRATION PROVISION WILL GOVERN ANY AND ALL CLAIMS AND DISPUTES ARISING IN CONNECTION WITH YOUR ACCOUNT AND WILL HAVE A SUBSTANTIAL IMPACT ON THE WAY YOU AND WE WILL RESOLVE ANY SUCH CLAIMS AND DISPUTES, NOW OR IN THE FUTURE. FOR EXAMPLE, IF YOU DO NOT REJECT THIS ARBITRATION PROVISION, WE CAN REQUIRE INDIVIDUAL ARBITRATION OF ANY LEGAL DISPUTE BETWEEN YOU AND US REGARDING THE ACCOUNT (EXCEPT A SMALL CLAIMS COURT ACTION AND CERTAIN OTHER EXCEPTIONS SET FORTH HEREIN) AND YOU WILL NOT HAVE THE RIGHT TO A JURY TRIAL OR TO BRING OR PARTICIPATE IN ANY CLASS ACTION OR OTHER REPRESENTATIVE PROCEEDING IN COURT OR IN ARBITRATION.

This is both conspicuous and understandable, assuming the consumer takes a few moments to read it. However, according to the Sovern letter, “few consumers read the boilerplate contracts that include arbitration clauses.” If that is the case, it is hardly the companies’ fault, and it underscores the need for the CFPB to step up its consumer education mission rather than punishing companies by stripping the arbitration clauses from their contracts. Eliminating arbitration clauses from consumer contracts not only deprives consumers of the proven benefits of arbitration, but it does so without educating them about what awaits them in the world of litigation, which can be chock full of delays, hostilities, inefficiencies and unpleasantries.

The CFPB certainly has both the money and the resources to mount a robust arbitration education program, but it has lacked the will to do so. One of its primary divisions is Consumer Education and External Affairs, which over the past five years has enjoyed a 15% increase in employee growth. More than 24 million people used the CFPB’s educational resources, both web and paper, during Fiscal Year 2023. One of this division’s objectives is “offer[ing] consumers a variety of information, tools, and programs to assist consumers in understanding and asserting their rights,” but the topic of dispute resolution is not included.

Consumer advocates have also done nothing to educate consumers about arbitration other than to say, in a conclusory fashion, that it is bad for them. The Sovern letter refuses to even address consumer education issues, stating that: “We do not wade into the debate over the relative merits of resolving consumer disputes in arbitration rather than in our nation’s court systems.” In the absence of such a debate, how are consumers supposed to exercise “informed consent” about their dispute resolution options, regardless of whether arbitration is agreed to before or after a dispute has arisen?

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