by Jeff Sovern
Last week, I suggested that the CFPB adopt a new arbitration rule. Yesterday, Ballard Spahr's Mark Levin commented on my proposal, in a blog post titled Professor Sovern’s opt-in arbitration proposal is neither new nor supportable. This post responds to some of Mr. Levin's arguments.
Mr. Levin wrote that my suggestion would be "barred by the Congressional Review Act because it is 'substantially the same' as the earlier CFPB rule barring the use of class action waivers that Congress vetoed." I don't see how my rule giving consumers a choice to opt in to arbitration clauses, which could include class action waivers, could be substantially the same as the earlier rule which blocked consumers and companies from agreeing to class action waivers. I am not familiar with this idea that allowing choice is the same as prohibiting conduct.
Mr. Levin sees my proposal to allow consumers to opt in to arbitration before a dispute arises as "the latest spin" on proposals allowing the parties to agree to arbitration after a dispute has arisen. He cited an article reporting on a survey of employment lawyers addressing employment disputes for the proposition that parties don't agree to arbitration after a dispute has arisen. But whatever merit that survey has for the willingness of parties to enter into agreements to arbitrate employment disputes after a dispute has arisen, it has little bearing on arbitration clauses that people can agree to before a consumer dispute has arisen. Mr. Levin seems to believe both that consumers understand arbitration clauses and that arbitration is better for consumers. If that is so (spoiler alert: it isn't), Mr. Levin's clients should be able to explain arbitration clauses to their customers in such a way as to persuade those customers to opt in to arbitration.
Mr. Levin repeats a deceptive industry talking point: "consumers who arbitrate fare much better, recovering an average of $5,389 in individual arbitration compared to $32.35 recovered by the average class member." The reason that's deceptive is because, as has repeatedly been demonstrated, including by the CFPB Study, consumers rarely seek to arbitrate unless they have quite a bit–$1,000 and more–at issue. In contrast, many class actions are brought for tiny claims. Of course if a consumer seeks only $30, they're not going to recover $5,000. One reason the industry like arbitration clauses is because they prevent consumers from asserting small claims, and this statistic merely reflects that fact.
I hope the CFPB moves swiftly to adopt a new arbitration rule. Consumers need protection from these incomprehensible clauses that take away their constitutional rights and leave them exposed to unfair treatment.
3 thoughts on “A reply to Mark Levin’s claims about my proposal for a new CFPB arbitration rule”
Professor Sovern’s suggestions are well founded and would redress the numerous problems plaguing arbitration.
Thus far I have never heard any good response to my favorite point. IF arbitration is so great for small and medium size businesses, (and consumers) then knowledgeable parties will choose to arbitrate AFTER disputes have arisen. They don’t, which speaks eloquent volumes.
My former law firm and I represented auto dealers in over 200 AAA arbitrations to final award, and often beyond in federal district and appellate courts. Based on our own files and AAA bills in cases against Ford Dealer Computer Services a/k/a Dealer Computer Services (now Reynolds & Reynolds) we calculated AAA arbitrations litigating the same case, over the same form contracts, against the same lawyers, who always used the same experts cost our clients over $100,000.00 MORE than when we were able to litigate those disputes in federal court. What was true of arbitration’s benefits and cost effectiveness when I began in ADR in the 1970s and 1980s has not been true for decades.
My auto dealer clients took their problems with being abused in AAA arbitrations to Congress decades ago. We were not originally successful, but we persevered. Eventually in 2002 we were successful in obtaining passage of legislation providing that no agreement to arbitrate disputes between automobile manufacturers and automobile dealers is enforceable unless entered into AFTER the dispute has arisen. Codified at 15 U.S.C. § 1226(a)(2), the law states:
“(2) Consent required
Notwithstanding any other provision of law, whenever a motor vehicle franchise contract provides for the use of arbitration to resolve a controversy arising out of or relating to such contract, arbitration may be used to settle such controversy only if after such controversy arises all parties to such controversy consent in writing to use arbitration to settle such controversy.”
There are some areas where arbitration is appropriate, IF the parties know and actually understand what they are agreeing to. Small and Medium size businesses (and Consumers) virtually never have that understanding. Neither can Small or Mid size businesses, much less Consumers, afford arbitration specialty counsel.
I can not see how allowing Small and Medium size businesses, and Consumers, the same benefits present law grants to automobile dealers in disputes with auto manufacturers is a problem.
It’s seriously worth exploring whether Congress’s attempt to invoke the CRA was a nullity because putative director Cordray’s actions were ultra vires (as the Supreme Court held in Seila Law) and never ratified.
I agree with your analysis and perception of arbitration clauses by consumers. Arbitration has turned into nothing but a strong arm meeting by individuals or arbitrators who obviously represent the same industries or institutions consumers are complaining about or have been damaged or who have injured them. There’s plenty of examples and testimonials available by consumers describing the exact treatment you posted in this article and or opposition to Mr Levin’s comments. Consumers are being attacked, preyed upon, abused, ripped off, and extorted at a growing or exponential rate. It’s time to enforce current laws, void bad policies, and protect consumers with rules and laws that are strictly enforced.