Since the passage of the Dodd-Frank Act, the consumer finance industry has been concerned about the power granted in the law to the Consumer Financial Protection Bureau to study mandatory, pre-dispute arbitration and to prohibit the practice in connection with consumer products and services. Almost one year ago, the CFPB published “Request for Information Regarding Scope, Methods, and Data Sources for Conducting Study of Pre-Dispute Arbitration Agreements.” The CFPB stated that the Request was “a preliminary step in undertaking the study.”
In September of this year, the CFPB received approval from the Office of Management and Budget to conduct a “nation-wide telephone survey” to further its study of arbitration agreements in consumer financial products and services. We expect to see the results of the Request, and now this survey—funded by the OMB—soon.
This CFPB survey is most assuredly not a study. Further, it will not even attempt to measure the “satisfaction” of consumers with the arbitration process because in the words of the CFPB:
“The survey will not gather data regarding respondents’ post-fact satisfaction with arbitration or litigation proceedings, given the difficulty in finding consumers that have had personal experience with both forums.”
A survey of consumers with respect to arbitration “satisfaction” makes no sense unless the survey has a mechanism to compare arbitration with litigation results—particularly class action litigation results. A survey is just that—a survey—with no promise or even expectation of the return of accurate data. So, why bother? What benefit does the CFPB derive from surveying 1,000 credit card holders unless the CFPB intends to use questions and responses that are hostile to pre-dispute arbitration to support preconceived notions that mandatory arbitration hurts consumers?
Any meaningful study of arbitration pursuant to the Dodd-Frank Act must measure the results of arbitration against the results of litigation. Anecdotal surveys are generally useless in addition to being replete with accuracy problems. Empirical studies support the conclusion that consumers routinely fare better in resolving bona fide disputes with their creditors through arbitration, rather than in litigation.
Our industry well remembers the 1990’s, when making consumer loans absent mandatory, pre-dispute arbitration was like walking through a minefield with a bad map. We hope not to see those days again.