Reuters’s Allson Frankel has the story here, and also reports on industry opposition. The original petition, as well as the comments, can be read here. Here’s an excerpt from the law professor comment (disclosure: I served on the drafting committee):
Multiple studies have demonstrated that consumers do not understand arbitration clauses. In contrast, no study has ever found that consumers do comprehend arbitration clauses. In the past decades, as businesses have incorporated thousands of arbitration clauses in consumer contracts, no evidence exists that anyone has been able to construct one that the average consumer can understand.
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Before turning to the evidence supporting this claim, we explain why the inability to draft a comprehensible arbitration clause matters. First, it is significant because, as the Supreme Court
has explained, “[a]rbitration under the [FAA] is a matter of consent. . . .” See Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junor Univ., 489 U.S. 468, 479 (1989). Cf. Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 685 (2015) (writing in the context of referrals to bankruptcy courts, the Court emphasized that waiver of the right to Article III adjudication “must still be knowing and voluntary.”). Consent is required because consumers entering into arbitration clauses surrender their constitutional right to a jury trial, their “day in court,” their right to appeal erroneous determinations, and their right to band together with other injured consumers to make dispute resolution affordable, among other rights. The importance of these rights makes it equally important that when consumers give them up, they understand that they are doing so. But when consumers enter into contracts that include arbitration clauses, they are not aware that they are giving up these rights. In other words, consumers do not consent in any meaningful sense of the word when they sign contracts containing arbitration clauses.
Second, in some circumstances, Congress has deemed it “abusive” that consumers are unable to understand the conditions under which consumer financial services are offered. In the Dodd-Frank Act, Congress endowed the Bureau with the power to issue rules prohibiting abusive conduct that “(2) takes unreasonable advantage of—(A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service.” See 12 U.S.C. § 5531(d). A contract term that strips consumers of their constitutional and other fundamental rights without consumers even realizing it undoubtedly “takes unreasonable advantage” of consumers’ lack of understanding. In other words, to the extent that arbitration clauses eliminate consumer rights without consumers even realizing that that is happening, arbitration clauses are abusive.
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Consumers do not understand what they agree to in arbitration clauses. Thus, in Professor Roseanna Sommers’s 2023 study of consumer comprehension of arbitration clauses, only five consumers out of 946—half of one percent—who were asked about an identity theft scenario recognized that an arbitration clause deprived them of each of their rights “to sue in court, to a jury trial, to join a class action, to appeal an erroneous decision to another arbitrator or to start over again in court.” See Roseanna Sommers, What do Consumers Understand about Predispute Arbitration Agreements? An Empirical Investigation, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4521064 (2023). Three times as many respondents erroneously believed they could litigate the matter in court as understood that the arbitration clause precluded such litigation, while more than four times as many respondents believed they could join in a class action as correctly realized that they could not.
A similar empirical study found that four times as many respondents believed they could participate in a class action as appreciated that the arbitration clause blocked such participation, while more than three times as many respondents thought they could have a court decide a dispute as correctly realized that they couldn’t. See Jeff Sovern, Elayne E. Greenberg, Paul F. Kirgis & Yuxiang Liu, ‘Whimsy Little Contracts’ with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements, 75 Md. L. Rev. 1, 46-47, 51-52 (2015) (hereinafter, Whimsy Little Contracts). Only two respondents out of 663 answered correctly the eight questions the study posed about arbitration while 117 did not answer any correctly. Id. at 64. Similarly, 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. See CFPB, ARBITRATION STUDY: REPORT TO CONGRESS, PURSUANT TO DODD–FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT § 1028(a), § 3 (2015), https://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf
