St. John’s Arbitration Study Suggests Opt-Outs Are Not the Answer to Arbitration Clauses

by Jeff Sovern

Alan S. Kaplinsky and Mark J. Levin, in their comments at the CFPB Monitor, wrote about the contract we showed the survey respondents: "The hypothetical card agreement used in the St. John’s study did not even contain an opt-out provision, although a substantial number of arbitration clauses in use today contain such a provision."

Absolutely correct.  We considered using an arbitration clause with an opt-out clause.  But the CFPB Study found that only about a quarter of arbitration clauses included such opt-outs.  In addition, including an opt-out would have made the survey questions more complex than we wanted. Nevertheless, our study suggests that opt-outs are not the answer to arbitration clauses that confuse consumers for two reasons. Quoting now from the study:

First, our study strongly suggests that consumers are not aware of the rights they waive in arbitration clauses. It thus seems unlikely that they are aware of the rights included in arbitration clauses, such as the right to opt out.  If consumers do not know of their right to opt out, they are unlikely to assert it.  Second, even consumers who notice that the contract permits an arbitration opt-out are unlikely to avail themselves of that option if they fail to appreciate that the arbitration clause strips them of any rights.  Many of the respondents seemed to believe arbitration supplements court litigation, rather than supplanting it. Accordingly, it is difficult to see why consumers would bother to prepare and send a letter opting out of arbitration.  But all of this is speculation on our part.  Credit card companies offering opt-outs undoubtedly know how many consumers have opted out. We hope that they will make that information available.