The (Consumer Financial Protection) Bureau (CFPB) shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.” – Dodd-Frank Act, Section 1028(a).
“Delay is the deadliest form of denial,” said historian C. Northcote Parkinson. Unfortunately, this appears to be the path that some in the financial services industry want to follow – to distract and delay the CFPB’s decision-making and action on forced arbitration.
Last month, the Bureau received comments from the public on the Bureau’s study of predispute binding (a.k.a forced) arbitration. Many corporations insert an arbitration clause in their terms of service to block consumers from holding them accountable in court. If consumers are hurt or ripped off, they must take their claims to private, secretive tribunals that favor the companies.
Under the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act, the Bureau is required to study arbitration clauses that companies insert in contracts for consumer financial products and services, steering disputes with consumers into private arbitration proceedings instead of open court. After the Bureau completes its study, it may use its authority to limit or ban the practice.
Numerous public interest organizations submitted comments to the Bureau’s request for information on the study, see here, for example. The groups mostly asked for a thorough review of the issues relating to arbitration, including its impact on consumers and their ability, or lack thereof, to seek justice when they, individually or as a group, are financially injured by corporate wrongdoing.
As expected, the submissions from the financial industry were quite different. The re-occurring theme emerging from many of the industry submissions: distract and delay.
The industry suggests that the scope of the questions for the study should be broadened, arguing that the parameters would make the study inadequate. The Bureau’s request for information covered three relevant areas: the prevalence of arbitration clauses, issues relating to what occurs in arbitration, and issues relating to the impact of arbitration clauses outside of arbitration. These questions are ripe for CFPB examination and are related to the mandate to study the “use” of forced arbitration clauses in consumer financial services contracts. The argument to broaden the study would burden the agency forcing it to address questions beyond its capacity.
For example, industry commenters urged the CFPB to study the judicial system, including the “real-world burdens” on the court system. Not only is the “judicial system” considerably beyond the scope of the CFPB authority and the arbitration study, such an ambitious endeavor (does that include state and federal court systems?) would waste public resources and time.
It is also worth noting that while the financial industry directs its venom toward the court system, it refuses to surrender its own right to use it. A recent study found that businesses are reluctant to agree to arbitrate disputes with each other, preferring to resolve business disputes in court. Further, in numerous consumer contracts, businesses will reserve their claims against consumers for court, but will force potential consumer claims into private individual arbitration.
The industry comments also argue that the costs and benefits of arbitration must be compared with the costs and benefits of the judicial system. This suggestion is a false comparison, because it implies that consumers can choose either arbitration or court to resolve disputes with corporations. When forced arbitration clauses are buried in the fine print of contracts, consumers’ access to court is eliminated. The real assessment in this case is to add the costs of corporate-run arbitration to the elimination of consumers’ choice on how to resolve their disputes with said corporations. These factors amount to a double whammy of injustice for consumers.
Often included in forced arbitration clauses are provisions that forbid consumers to participate in class actions. The class action bans are an extension of the removal of consumers’ rights in consumer contracts. The CFPB will encounter class action bans in its examination of forced arbitration clauses. However, industry comments continue to go off-topic by suggesting that the Bureau examine cy pres awards in class action settlements. Cy pres awards are distributed to organizations whose missions reflect the concerns of an underlying class-action case, or whose work will further the class benefits provided by a settlement. The money is awarded after the fund is distributed among class members. Cy pres awards are unconnected to this study. Instead of addressing the clear issue of the impact of class action bans on the financial market, the industry representatives suggest that the CFPB study an extraneous and irrelevant topic – another way to distract and delay from the real matter at hand.
Industry commenters have also suggested that the CFPB consider that some disputes between consumers and businesses are resolved before legal proceedings. It is helpful for consumers and businesses that some disputes are resolved before they escalate, but this suggestion evades the real question of what happens to the disputes that need a formal resolution. The forced arbitration clauses assure that these claims are either heard in a secretive, corporate-run arbitration process, or are most likely not heard at all. The fact that some disputes may be resolved before legal proceedings occur has no impact on those claims that are not.
In one last example, industry commenters suggest that the Bureau add procedural hurdles, such as recommending that the agency seek additional comments on the study and, unnecessary suggestions that it define already well-established terms, such as “public interest,” before it begins to conduct the study. These and other industry suggestions are transparent attempts to delay the completion of the study and subsequent rulemaking on the use of forced arbitration in contracts for consumer financial products and services.