Critique of the Consumer Financial Protection Bureau’s arbitration study

The Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the CFPB conduct a study on the use of pre-dispute arbitration clauses in consumer financial markets. The Dodd-Frank Act specifically prohibits the use of arbitration clauses in mortgage contracts. And it gives the Bureau the power to issue regulations on the use of arbitration clauses in other consumer finance markets if the Bureau finds that doing so is in the public interest and for the protection of consumers, and if findings in the agency's regulation are consistent with the results of the Bureau’s study.

In March, the CFPB issued its study, which found that mandatory pre-dispute arbitration clauses unfairly undermine consumers' rights to bring and be members of class actions. Go here to read the study and see what the CFPB said at the time.

But some people don't like the CFPB study. Our readers may be interested in reading The Consumer Financial Protection Bureau's Arbitration Study: A Summary and Critique by law professors Jason Johnston and Todd Zywicki. Here is the abstract:

The Consumer Financial Protection Bureau’s Arbitration Study: Report to Congress 2015 does not support the case for ex ante regulation of mandatory consumer arbitration clauses. It contains no data on the typical arbitration outcome – a settlement – and it is these arbitral settlements, and not arbitral awards, that should be compared to class action settlements. It does not address the public policy question of whether, by resolving disputes more accurately on the merits, arbitration may prevent class action settlements induced solely by defendants’ incentive to avoid massive discovery costs. It shows that in arbitration consumers often get settlements or awards, are typically represented by counsel, and achieve good results even when they are unrepresented. In class action settlements, the Consumer Financial Protection Bureau reports surprisingly high payout rates to class members and low attorneys’ fees relative to total class payout. These aggregated average numbers reflect the results in a very small number of massive class action settlements. Many class action settlements have much lower payout rates and higher attorneys’ fees.


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