Chamber of Commerce Letter on Arbitration: Does it Make the Case for Class Actions?

by Jeff Sovern

Earlier today, the US Chamber of Commerce released a letter to CFPB Director Richard Cordray from David Hirschmann, President and CEO, Center for Capital Markets Competitiveness, urging the Director to address certain issues at Thursday's CFPB arbitration field hearing. Here's one of those issues, as stated in the letter:

[T]he public would benefit if your remarks were to include a discussion of how a consumers with a small claim based on unique circumstances would be able to vindicate those legal claims if companies, faced with the need to reserve millions of dollars for class action defense, were to cease subsidizing consumer arbitration programs. Under the current class action litigation rules, many small claims that involve issues that customers actually care about, such as alleged overcharges or the failure to credit a deposit on time, are unlikely to be classable because they are individualized disputes. For these claims, consumers will therefore have virtually no economically rational options for seeking redress: arbitration (in which most companies pay for consumers to bring claims against them, making it free to the consumer) will be gone; class action litigation will not be available; and rational consumers are not going to pay a $400 filing fee to pursue a $25 claim in court. Taking the opportunity to highlight how consumers will obtain redress for these types of claims would be very helpful in advancing the discussion.

I'm going to assume for this blog post that the industry would indeed no longer use arbitration if they couldn't combine it with class action waivers.  Would consumers really suffer if they couldn't bring arbitration claims for $25?  Well, the CFPB study found that consumers almost never bring arbitration claims when less than $1,000 is at issue, so the ability to assert small claims in arbitration isn't worth much.  But if consumers want to bring $25 claims, they could still do so in small claims courts (I would be curious to hear about small claims courts that charge a $400 filing fee for a $25 claim).  So even if arbitration goes away, consumers would lose something they don't use and don't need when it comes to small claims.

Perhaps the most notable part of the paragraph is its concession that consumers will not devote substantial resources to winning $25 claims. That is precisely why we need class actions to protect consumers against being taken advantage of in small amounts: so that companies will be deterred from bilking consumers in amounts too small to justify consumers investing resources in stopping them.


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