As regular readers of the blog know, last month some 160 law academics filed with the CFPB a comment supporting the issuance of a new arbitration regulation (disclosure: I served on the drafting committee). of Ballard Spahr recently posted a critique of the law professor comment on the Consumer Finance Monitor Blog, titled Comment letters from consumer advocates bolster case against CFPB rulemaking on post-dispute arbitration clauses. Because of the end-of-semester time crunch, I won’t respond to the entire post, but I wanted to offer the following.
Messrs. Levin & Kaplinsky quoted an arbitration clause that they describe as “understandable.” Here it is:
WAIVER OF JURY TRIAL AND ARBITRATION PROVISION. READ THIS ARBITRATION PROVISION CAREFULLY. IF YOU DO NOT REJECT ARBITRATION IN ACCORDANCE WITH SUBPARAGRAPH (a) BELOW, THIS ARBITRATION PROVISION WILL GOVERN ANY AND ALL CLAIMS AND DISPUTES ARISING IN CONNECTION WITH YOUR ACCOUNT AND WILL HAVE A SUBSTANTIAL IMPACT ON THE WAY YOU AND WE WILL RESOLVE ANY SUCH CLAIMS AND DISPUTES, NOW OR IN THE FUTURE. FOR EXAMPLE, IF YOU DO NOT REJECT THIS ARBITRATION PROVISION, WE CAN REQUIRE INDIVIDUAL ARBITRATION OF ANY LEGAL DISPUTE BETWEEN YOU AND US REGARDING THE ACCOUNT (EXCEPT A SMALL CLAIMS COURT ACTION AND CERTAIN OTHER EXCEPTIONS SET FORTH HEREIN) AND YOU WILL NOT HAVE THE RIGHT TO A JURY TRIAL OR TO BRING OR PARTICIPATE IN ANY CLASS ACTION OR OTHER REPRESENTATIVE PROCEEDING IN COURT OR IN ARBITRATION.
The best way to determine if consumers can understand an arbitration clause is to show it to consumers and ask them questions to test their understanding of it, as my co-authors and I did in our Whimsy Little Contracts article and as Roseanna Sommers did in her recent article. I haven’t done that with the Levin/Kaplinsky clause so I cannot say with certainty whether consumers would understand it. But the Flesch-Kincaid Grade Level test gives the Levin/Kaplinsky clause a 17.3. In other words, the Levin/Kaplinsky clause would require readers not only to have finished college, but to have had more than a year of graduate school to understand. For comparison, the arbitration clause we tested in Whimsy Little Contracts required a 14.0 grade level–the equivalent of finishing your sophomore year of college–implying that the clause we tested that consumers couldn’t understand was actually more comprehensible than the Levin/Kaplinsky clause. I can’t say I’m surprised, when the Levin/Kaplinsky clause includes phrases like “certain other exceptions set forth herein” and “in accordance with subparagraph (a) below.” (Admit it; your eyes glazed over as you read it). I’m sure Messrs. Levin and Kaplinsky did find it understandable; they have considerably more education than the Flesch-Kincaid test says is required and they have the added benefit of being brilliant lawyers.
But there’s more. First, as best I can tell, that isn’t the complete arbitration clause. As noted, the Levin/Kaplinsky clause refers to a subparagraph (a) (and does that mean there’s a subparagraph (b)?) and to “certain other exceptions set forth herein.” Neither the subparagraphs nor the other exceptions are included in the post, which makes me wonder if the full clause would be even less readable. Second, the Levin/ Kaplinsky clause doesn’t mention all the respects in which arbitration clauses strip away consumer rights, such as the right to appeal. Nor does it mention that arbitration precludes proceeding in court. Lawyers know that, but one thing we learned from Whimsy Little Contracts is that many consumers don’t know it; many thought that they could proceed through the arbitration process and then sue in court. In other words, even if a consumer understood the Levin/Kaplinsky clause, they still wouldn’t know the full array of rights they were giving up by agreeing to it (maybe that’s in subparagraph (c)). Which means that it doesn’t do the job of eliciting meaningful consent from consumers.
As the academics’ letter says, ” In the past decades, as businesses have incorporated thousands of arbitration clauses in consumer contracts, no evidence exists that anyone has been able to construct one that the average consumer can understand.” The Levin/Kaplinsky post does not contradict that claim.