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«Via Federal Express July13, 2015 The Honorable Richard Cordray Bureau of Consumer Financial Protection 1275 First Street, NE Washington, DC 20002 Re: Comments on the Bureau’s Consumer Arbitration ...»

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The close correlation between the Study and the Chamber’s data reveals an empirical consensus that class actions benefit consumers’ lawyers but not the consumers themselves. Both reports confirm that in class actions: (1) the vast majority of customers receive no benefit whatsoever from being a class member; (2) any economic benefit to individual class members in Id. § 6, pp. 7, 38.

Id. § 5, pp. 11-12.

Id. § 8, p. 33.

A link to the report is available at http://www.instituteforlegalreform.com/resource/studyclass-actions-benefit-lawyers-not-consumers/.

DMEAST #22199841 v1 a class settlement is insignificant; and (3) the merits of the dispute are rarely reviewed or resolved. By contrast, the Study shows that customers can receive significant economic benefits in arbitration; they receive those benefits in months rather than years at little or no expense; and their disputes are resolved on the merits.

4. The Study Dispels Key Misconceptions about Consumer Arbitration

Plaintiffs’ class action attorneys and consumer advocates contend that arbitration is unfair to consumers because (a) arbitration is a barrier to class actions, because it imposes individual arbitration or dissuades class actions from being brought; (b) very few consumers actually use arbitration to resolve disputes; (c) the arbitration provisions are contained in form contracts which give customers no choice but to arbitrate; and (d) companies have an unfair advantage in arbitration, because they are “repeat players” before the arbitration organizations they have named in their contracts. Study data, however, dispel each of these misconceptions.

a. Arbitration Is Not a Barrier to Class Actions

Substantial data in the Study contradict the argument that arbitration clauses are a barrier to class actions. The Study found that arbitration was a factor—and therefore potentially a barrier—in only 8% of the 562 class actions studied. 27 That is because the defendant companies moved to compel arbitration in only 94 of the 562 class actions (16.7%), and those motions were granted in only 46 (one-half) of the class actions. 28 Thus, arbitration had no causal effect whatsoever on 92% of the class actions studied by the Bureau and, therefore, could not have been a barrier to consumers obtaining class relief in the overwhelming number of examples.29 These data are particularly remarkable since in the middle of the time period studied (2010the U.S. Supreme Court upheld the validity of class action waivers in consumer arbitration agreements in AT&T Mobility LLC v. Concepcion. 30 The Study found that while Concepcion generated a “slight upward trend” in the use of arbitration provisions, “the increase has not been as dramatic as predicted by some commentators.” 31 Inasmuch as the Study demonstrates that arbitration agreements with class action waivers have only a very minor (8%) impact on consumer class actions, regulating availability or use of such agreements would not be in the public interest, nor is such regulation needed to protect the public. Conversely, if the Bureau were to over-regulate arbitration agreements or prohibit the use of class action waivers in such agreements, as some advocate, many companies would likely discontinue offering arbitration to customers. That would harm consumers, as they would lose Study, § 6, p. 38 (“[a]ll claims against a company party were stayed or dismissed for arbitration in 8% of the [class] cases”).

Id. pp. 8-9, 57-58.

Id. § 1, p. 14.

See AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011).

Study, § 2, p. 12.

DMEAST #22199841 v1 the arbitration forum to resolve a dispute. They would be deprived of a valuable and time-tested procedure for economically, expeditiously, conveniently, and efficiently resolving individual customer disputes. Instead, they would be relegated to a procedure (class actions) in which they are likely to receive either no benefits at all or minuscule benefits that are delayed for years.

In fact, the Study clearly shows that the vast majority of class action lawsuits fail, not because the underlying disputes are sent to arbitration for individual disposition, but because they inherently lack merit and/or are not certifiable. The Study found that 35% of the class actions filed between 2010 and 2012 were withdrawn by plaintiffs and 25% were settled individually. 32 As noted in the Study, “[t]he most common outcome was a potential non-class settlement (typically, a withdrawal of claims by the plaintiff) …. Classwide judgment for consumers … [was] the least frequent of the identified outcomes … occurring in less than 1% of cases.” 33 The Study further found that “[c]lass certification rarely occurred outside the context of class settlement” and “[n]o class cases went to trial.” 34 These statistics strongly suggest that the vast majority of the so-called “class actions” studied were one-off disputes that did not involve systemic issues and/or were otherwise not meritorious or certifiable. 35 They buttress the conclusion that there is little, if any, causal relationship between the success of consumer class actions and the presence of arbitration clauses in the customers’ contracts, since most class actions fail due to their own inadequacies entirely unrelated to arbitration. Even as to the 92% of the class actions studied that were not ordered to be arbitrated, the Study demonstrates that class actions are an exceptionally poor vehicle for producing relief to customers. Moreover, these numbers effectively challenge the notion that class actions are an effective enforcement tool.

The data also debunk the oft-asserted argument from plaintiffs’ lawyers that the mere presence of an arbitration clause discourages or inhibits customers from pursuing remedies. 36 Assuming arguendo that there are class actions that are not brought because the potential plaintiffs’ contracts contained an arbitration clause with a class action waiver, there is no evidence to demonstrate that such class actions, if initiated, would have had a higher success rate than those that were filed and studied by the Bureau. Presumably, 60% of those class actions would never have resulted in any relief to putative class members, less than 1% of them would result in a judgment for Id. § 1, pp. 13-14; § 6, p. 37.

Id. § 6, p. 37.

Id. § 1, p. 14.

Of course, even marginal or frivolous class actions must be defended, often at substantial cost to the defendant company.

See, e.g., “Public Justice Comments to Bureau of Consumer Financial Protection In Response to Request for Information for Study of Pre-Dispute Arbitration Agreements,” Docket No. CFPB-2012-0017, p. 17 (June 23, 2012) (urging the Bureau to study “the claims suppression effects of arbitration clauses”).

DMEAST #22199841 v1 the plaintiffs, and any relief to putative class members afforded by class action settlements would be insignificant compared to the benefits obtainable in arbitration.

In sum, it is not arbitration that is a barrier to customers obtaining meaningful relief in class actions. Rather, the evidence demonstrates that it is class action litigation that may be precluding consumers from obtaining meaningful relief in arbitration.

–  –  –

The Study noted a “relatively low” number (1,847) of arbitration proceedings filed by customers against financial services companies. 37 However, no inference should be drawn that customers prefer litigation to arbitration or that arbitration is an ineffective remedy compared to class actions. In reality, the vast majority of customer disputes are resolved by more direct methods without the need for arbitration or litigation, even small claims litigation.

Indeed, the Bureau has established a portal through which financial services companies resolve consumer disputes directly and without intervention, and the Bureau uses every opportunity to encourage consumers to file complaints through the portal. According to its website, from July 2011 through March 1, 2015, more than 558,800 consumer complaints and issues have been resolved in this manner. 38 The Bureau’s Consumer Response Annual Report also provides monetary relief information for companies that report such relief. This includes median relief of $363 for 670 debt collection complaints, $475 for 1,000 mortgage complaints, $24 for 200 credit reporting complaints, $105 for 3,060 bank account and service complaints, $121 for 3,140 credit card complaints, $200 for 270 private student loan complaints, and $319 for 70 payday loan complaints. 39 In addition to the Bureau, a vast number of other federal agencies as well as state agencies such as state attorneys’ general offices provide their own complaint portals, as do private entities such as the Better Business Bureau.

The fact that the number of consumer arbitrations is relatively small can also be explained by the following facts: (a) for almost two decades consumer advocates have sent consistently negative messages about arbitration to dissuade consumers from arbitrating; 40 (b) Study, § 5, p. 9.

See http://files.consumerfinance.gov/f/201503_cfpb_complaints-by-the- numbers.pdf.

CFPB, Consumer Response Annual Report (January 1-December 31, 2014), p. 43, available at http://files.consumerfinance.gov/f/201503_cfpb_consumer-response-annualreport-2014.pdf.

For example, the consumer advocacy organization Public Justice states on its website that “[o]ur Mandatory Arbitration Abuse Prevention Project is the acknowledged national leader in the battle against corporate efforts to use arbitration ….” See http://www.publicjustice.net/what-we-do/access-justice/mandatory-arbitration.

DMEAST #22199841 v1 consumer arbitration is still “the new kid on the block” compared to litigation; 41(c) government enforcement actions, including vigorous regulatory and supervisory activities by the Bureau, 42 reduce the field for consumers to bring private actions; 43 (d) individuals are turning increasingly to on-line arbitration and mediation resources to resolve small-dollar customer complaints (see note 9 supra); and (e) the Bureau has done little to educate consumers about the many benefits that arbitration can offer. With respect to this latter point, the Study found that over 75% of consumers surveyed said they do not know whether their credit card agreement contained an arbitration clause. The Bureau can play an important role in rectifying that situation by having its Consumer Education and Engagement division educate customers about the relative costs and benefits of arbitration and litigation—particularly class action litigation.

c. Customers Have Choices Regarding Arbitration

The Study found that 85% of credit card issuers (covering 47% of the market) and 92.3% of banks (with 56% of insured deposits) do not include arbitration provisions in their customer contracts. 44 Clearly, customers who prefer not to have an arbitration provision in their account agreement can choose companies that do not offer arbitration programs. These include four of the ten largest credit card issuers (Bank of America, Capital One, Chase, and HSBC), which before 2009 included arbitration provisions in their account agreements but no longer do so. 45 Moreover, at least 25% of those contracts that contain arbitration provisions also provide the customer with a contractual right to reject the arbitration provision, typically within 30 to 60 days of entering the contract, without affecting any other provision in the contract. 46 See Prepared Remarks of Bureau Director Cordray at the March 10, 2015 Arbitration Field Hearing, p. 1 (although the Federal Arbitration Act was passed in 1925, “[a]rbitration clauses were rarely seen in consumer financial contracts until the last twenty years or so”).

See discussion at pages 18-20 of this letter.

The Study identified 1,150 consumer financial enforcement actions filed between 2008 and 2012 by state, municipal, and federal entities. Of those, only 15% had one or more matching class action litigations. Study, § 9, p. 14.

Id. § 1, pp. 9-10; § 2, pp. 7, 9, 14.

Id. § 2, pp. 10-11.

Id. § 2, p. 31. Scores of federal and state courts have enforced arbitration provisions on the basis that it permitted the consumer to opt out. See, e.g., Circuit City Stores, Inc. v.

Ahmed, 283 F.3d 1198 (9th Cir. 2002); Circuit City Stores, Inc. v. Najd, 294 F.3d 1104, 1108 (9th Cir. 2002); Marley v. Macy’s South, No. CV 405-227, 2007 WL 1745619, at *3 (S.D. Ga. June 18, 2007); Providian National Bank v. Screws, 894 So. 2d 625 (Ala.

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