A Comment on Kaplinsky & Levin’s “CFPB Makes Consumer Arbitration a Numbers Game—and the Numbers Overwhelmingly Support Consumer Arbitration”

by Jeff Sovern

The following is the body of an email I sent to the editor of the Consumer Financial Services Law Report (a very useful newsletter on developments in consumer finance):

The August 9, 2015 issue of the Consumer Financial Services Law Report includes an advocacy piece by financial industry lawyers Alan S. Kaplinsky and Mark J. Levin titled CFPB Makes Consumer Arbitration a Numbers Game—and the Numbers Overwhelmingly Support Consumer Arbitration, that comments on an article I co-authored. I write to set the record straight.

Our article reports on an online survey my co-authors and I conducted of 668 consumers approximately reflecting adult Americans in various demographic categories.  We provided consumers with a representative credit card contract that included an arbitration clause printed in bold, italics, and ALLCAPS. The arbitration clause was more readable than most such arbitration clauses. We then asked consumers questions about the arbitration clause as well as about arbitration clauses in general.  The responses indicated that few respondents understood the arbitration clause and that many believed that they could not lose their rights to judicial process, including the rights to litigate in court and to participate in class actions, by agreeing to what one respondent termed a “whimsy little contract.” 

Our findings raise serious questions about whether consumer consent to pre-dispute arbitration clauses is informed and thus whether it can be called consent in any meaningful sense.  The results thus create doubt about arbitration’s legitimacy, because any such legitimacy must be rooted in consent: consumers cannot be forced to arbitrate unless they have agreed to do so.

Messrs. Kaplinsky and Levin do not question our findings. Indeed, it would be difficult for them to do so, given that the CFPB’s telephone survey echoed some of our results, and that an industry group, the American Financial Services Association, has acknowledged both that consumers usually do not read contracts and that it is unlikely they are aware of credit card arbitration clauses.  See Letter from Bill Himpler, American Financial Services Association to CFPB re Telephone Survey Exploring Consumer Awareness of and Perceptions Regarding Dispute Resolution Provisions in Credit Card Agreements (Aug. 6, 2013), http://www.afsaonline.org/library/files/legal/comment_letters/CFPBArbitrationSurvey.pdf.

Instead, Messrs. Kaplinsky and Levin claim that a “methodological flaw” in our study “is the critical fact that the authors did not interview consumers who actually had participated in arbitration and who would likely have positive comments about their experience.” Next we will see tobacco companies charging that studies showing smoking is harmful suffer from a “methodological flaw” because the studies did not ask smokers whether they enjoy smoking.  Our study was intended to shed light on whether consumers understood what they were doing when they surrendered constitutional rights, including the right to have a court decide their disputes and to a jury trial, among other rights.  Perhaps Messrs. Kaplinsky and Levin should focus on what we found, rather than on things they wish we had found.

I will leave to others the task of rebutting other claims Messrs. Kaplinsky and Levin made (I have previously responded to some of them on the Consumer Law and Policy Blog, which can be found at http://pubcit.typepad.com/).  But I want to make one more point.  For some reason, Messrs. Kaplinsky and Levin departed from conventional norms by referring to our article without including the names of the authors, the name of the article, or a link where it can be found. My co-authors are Elayne Greenberg, Paul Kirgis, and Yuxiang Liu and the article is titled “Whimsy Little Contracts” with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements. The article will appear in the Maryland Law Review and can be downloaded from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2516432.   It provides a much fuller accounting of our findings than I can here. 

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