Although it is widely believed that the Consumer Financial Protection Bureau will prohibit or at least limit the use of predispute arbitration agreements in consumer finance contracts after completing the arbitration study required by the Dodd-Frank Act, the CFPB signaled last week that it is unlikely to do so for a considerable period of time. On December 12, 2013, the CFPB reported “preliminary results” of the arbitration study it commenced in April 2012. The 168-page report, despite its length, indicates that the CFPB has made shockingly little progress and has yet to evaluate the most important issues, such as whether arbitration’s benefits to consumers outweigh the costs. Absent a sudden change of pace by the Bureau, rulemaking to ban predispute arbitration in consumer contracts is unlikely to begin for many months.
To date, the study has focused on arbitration provisions governing credit cards, prepaid cards and checking accounts. The CFPB has surveyed the incidence of various features of arbitration agreements, such as opt-out procedures, small-claims carve outs, cost allocations and minimum awards, and analyzed the readability of the provisions from a grade-level standpoint. It also has gathered data on the frequency and type of consumer arbitrations and small claims lawsuits filed from 2010 through the end of 2012 in the credit card, checking account and payday loan markets.
The most interesting aspect of the report is the section on what is left to be done, which one might argue is the core of the inquiry. In addition to completing the foregoing analyses and possibly expanding them into additional business segments, the CFPB plans to complete its previously announced consumer survey, conduct focus groups, and compare in several ways the costs and benefits of consumer arbitration, individual consumer litigation (including in small claims court), and consumer class actions. Although part of this analysis apparently will include an assessment of “whether class actions exert improper pressure on defendants to settle meritless claims,” the description of remaining work generally is consistent with the rhetoric of the plaintiffs’ class action bar and suggests that conclusions already have been reached.
Given the CFPB’s aggressive agenda in other areas, the slow pace at which it is conducting this study is nothing short of remarkable. Presumably the Bureau is attempting to insulate the restrictions everyone knows are coming from Congressional reaction and/or litigation claiming the Bureau failed to study consumer arbitration adequately before restricting it. In taking this approach, however, the Bureau is extending the life of arbitration clauses in consumer finance contracts, which is excellent news for proponents of consumer arbitration.