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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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2003); Tsadilas v. Providian National Bank, 13 A.D.3d 190, 786 N.Y.S.2d 478 (N.Y.

App. Div. 1st Dep’t 2004), appeal denied, 5 N.Y.3d 702, 832 N.E.2d 1189, 799 N.Y.S.2d 773 (June 4, 2005); Webb v. ALC of West Cleveland, Inc., No. 90843, 2008 WL 4358554 (Ohio Ct. App., 8th App. Dist. Sept. 25, 2008); Pivoris v. TCF Financial Corp., No. 07-C DMEAST #22199841 v1 d. Companies Do Not Have an Unfair Advantage in Arbitration as “Repeat Players” The Study found that almost all of the arbitration proceedings involved companies with repeat experience in the forum. However, that was counter-balanced by the fact that counsel for the consumers were also usually repeat players in arbitration. 47 Moreover, in 81% of the arbitrations in which customers were awarded affirmative relief, the company was a “repeat player,” but the customer prevailed anyway. 48

–  –  –

The Associations strongly urge the Bureau to conduct additional research on several important issues before making policy decisions regarding whether restricting or prohibiting consumer arbitration clauses would be in the public interest.

First, the Bureau should study consumer satisfaction with the arbitration process. The Bureau’s telephone survey of 1007 consumers merely purported to explore consumers’ “default assumptions” concerning arbitration and intentionally excluded consumers who had actually participated in an arbitration proceeding. 49 Both logic and common sense dictate that the Bureau should seek to measure consumer satisfaction with arbitration as it is an essential factor to be considered in an analysis of whether consumer arbitration is in the public interest.

2673, 2007 U.S. Dist. LEXIS 90562 (N.D. Ill. Dec. 7, 2007); SDS Autos, Inc. v.

Chrzanowski, Case No. 1D06-4293, 2007 WL 4145222 (Fla Ct. App., 1st Dist. Nov. 26, 2007); Honig v. Comcast of Ga., LLC, Civil Action No. 1:07-cv-1839-TCB, 537 F. Supp.

2d 1277 (N.D. Ga. Jan. 31, 2007); Davidson v. Cingular Wireless, LLC, No. 2:06-cvWL 896349, at *6 (E.D. Ark. Mar. 23, 2007); Martin v. Delaware Title Loans, Inc., No. 08-3322, 2008 WL 444302 (E.D. Pa. Oct. 1, 2008); Columbia Credit Services, Inc. v. Billingslea, No. B190776, 2007 WL 1982721 (Cal. Ct. App. July 10, 2007); Eaves-Leanos v. Assurant, Inc., No. 07-18, 2008 WL 1805431 (W.D. Ky. Apr. 21, 2008); Enderlin v. XM Satellite Radio Holdings, Inc., No. 06-0032, 2008 WL 830262 (E.D. Ark. March 25, 2008); Crandall v. AT&T Mobility, LLC, No. 07-750, 2008 WL 2796752 (S.D. Ill. July 18, 2008); Guadagno v. E*Trade Bank, No. CV 08-03628 SJO (JCX), 2008 WL 5479062 (C.D. Calif. Dec. 29, 2008); Magee v. Advance America Servicing of Ark, Inc., No 6:08-CV-6105, 2009 WL 890991 (W.D. Ark. April 1, 2009);

Clerk v. ACE Cash Express, Inc., No. 09-05117, 2010 U.S. Dist. LEXIS 7978 (E.D. Pa.

Jan. 29, 2010).

Study, § 1, p. 12; § 5, p. 10 & n. 16.

Id. § 5, p. 67.

Id. § 3, p. 4 (“[w]e opted not to explore consumer satisfaction with arbitration (or litigation proceedings”).

DMEAST #22199841 v1 As the Study acknowledges, there is precedent for studying this issue. 50 For example, in 2005 Harris Interactive conducted an online poll of 609 individuals who had participated in an arbitration proceeding in which a decision was reached. 51 That poll concluded, inter alia, that (1) arbitration was widely seen as faster (74%), simpler (63%), and cheaper (51%) than going to court; (2) two thirds (66%) of the participants said they would be likely to use arbitration again, with nearly half (48%) saying they were extremely likely to do so, and even among those who lost, one-third said they were at least somewhat likely to use arbitration again; (3) most participants were very satisfied with the arbitrators’ performance, the confidentiality process, and its length; and (4) although winners found the process and outcome very fair and losers found the outcome much less fair, 40% of those who lost were moderately to highly satisfied with the fairness of the process, and 21% were moderately to highly satisfied with the outcome.

The Associations submit that, notwithstanding the Bureau’s assertion that it is difficult to find consumers who have personal experience with both arbitration and litigation, 52 the opinions of consumers who have experienced the arbitration process are more valuable than the opinions of the consumers questioned in the Bureau’s telephone survey who had never participated in an arbitration. The Associations believe that the Bureau’s survey greatly diminished the value and relevance of the data as well as the Study as a whole.

Second, the Bureau should continue to study the benefits, if any, that individual class members receive in class action settlements. The Study reports data on the benefits of class actions in aggregate terms, failing to disclose the small sums that individual class members receive. Based upon the Bureau’s finding that aggregate cash payments to “at least 34 million consumers” during the period studied were “at least $1.1 billion,” 53 the Associations estimate that the average cash payment received by individuals in a settlement class was a mere $32.35.

That figure pales by comparison with the $5,389 that the average customer received in arbitration. 54 In addition, the Bureau should conduct a survey of consumers who have gone through class action litigation. Such a survey would shed much light on the issue of consumer satisfaction with class actions.





While the Associations have sought to make apples-to-apples comparisons between arbitration and class action litigation based upon the Study’s aggregate data, the Study itself attempts to shy away from doing so. Instead, the Study urges readers to exercise “caution in drawing conclusions as to how well consumers or companies fare in arbitration as compared to Id. § 3. p. 5 n. 5.

See Harris Interactive, Survey of Arbitration Participants (April 2005), available at http://www.adrforum.com/rcontrol/documents/ResearchStudiesAndStatistics/2005Harris Poll.pdf.

Study, § 3 p. 5.

Id. § 1, pp. 16-17, § 8, pp. 27-28.

Id. § 5, pp. 13, 41.

DMEAST #22199841 v1 litigation.” 55 It reiterates that “[c]omparing outcomes across litigation and arbitration is especially treacherous” and “quite challenging.” 56 If that is so, then what was the basis for the Bureau’s press release for the March 10 field hearing, which emphasized the benefits of class actions over arbitration? 57 More importantly, what basis could there be for any regulation that would prohibit or materially limit consumer arbitration provisions in financial services contracts if the Bureau is unable to demonstrate clearly and convincingly that individual consumers fare worse in arbitration than they do in class action litigation?

The fact that the Bureau has acknowledged that in 60% of the putative class actions studied, class members recovered absolutely nothing makes it incumbent on the Bureau to analyze the amount that individual class members received in the 15% of the class actions that received final settlement approval. Any regulation by the Bureau that is based upon the alleged superiority of class actions as a means of resolving customer disputes must be supported by specific data showing that customers fare better in class actions than in arbitration. Such data are presented nowhere in the Study. In fact, the data in the Study show that arbitration is superior to class actions in terms of financial recovery for consumers ($5,389 versus $32.35).

Third, the Bureau should conduct additional analysis of whether the use of consumer arbitration provisions by companies lowers the costs of the goods and services these companies provide to customers and, conversely, whether the elimination of arbitration provisions or of class action waivers within them would increase the costs of goods and services to customers.

The results of the Study on this issue were inconclusive as the Bureau found “little empirical evidence” and a “lack of a statistically significant effect.” 58 The Bureau acknowledged that “we have not specifically isolated and studied the effect of removing arbitration clauses on the pricing of small issuers,” and further acknowledged that “our analysis cannot be interpreted as establishing that companies did not save money from their use of pre-dispute arbitration clauses.” 59 The Associations believe that this merits further study. Congress has recognized the extraordinary costs and burdens that companies are forced to incur in defending class actions, even the costs of defending against frivolous and marginally meritorious lawsuits. In enacting the Class Action Fairness Act of 2005, Congress found, inter alia, that— [C]orporate defendants are forced to settle frivolous claims to avoid expensive litigation, thus driving up consumer prices.

Id. p. 7.

Id. § 6, p. 4.

See http://www.consumerfinance.gov/newsroom/cfpb-study-finds-that-arbitrationagreements-limit-relief-for-consumers/.

Study, § 10, pp. 5, 16.

Id. p. 16.

–  –  –

Because class actions are such a powerful tool, they can give a class attorney unbounded leverage, particularly in jurisdictions that are considered plaintifffriendly. Such leverage can essentially force corporate defendants to pay ransom to class attorneys by settling—rather than litigating—frivolous lawsuits.

* * * Judge Richard Posner of the United States Court of Appeals for the Seventh Circuit has explained, “Certification of a class action, even one lacking merit, forces defendants to stake their companies on the outcome of a single jury trial, or be forced by fear of the risk of bankruptcy to settle even if they have no legal liability …. [Defendants] may not wish to roll these dice. That is putting it mildly.

They will be under intense pressure to settle.” Hence, when plaintiffs seek hundreds of millions of dollars in damages, basic economics can force a corporation to settle the suit, even if it is meritless and has only a five percent chance of success. 60 If there is a correlation between a company’s use of arbitration and the costs of the goods and services it supplies to customers, any regulation that eliminated the arbitration provision or its class action waiver could cause companies to incur substantially increased dispute resolution costs that could drive up the cost of the goods and services they provide to customers, the purported beneficiaries of such regulation. Basic economic theory dictates that if companies’ litigation costs increase, there will be corresponding pressure to increase revenue or reduce value. Many courts and commentators have so concluded. 61 Fourth, the Bureau should study the impact of recent U.S. Supreme Court decisions, such as Comcast Corp. v. Behrend and Wal-Mart Stores, Inc. v. Dukes, which make it more difficult Senate Report No. 14, The Class Action Fairness Act of 2005, 109th Congress, 1st Sess., 2005 WL 627977, at *14, 20-21 (Feb. 28, 2005).

See, e.g., Metro East v. Quest, 294 F.3d 294, 297 (7th Cir.), cert. denied, 537 U.S. 1090 (2002) (The “benefits of arbitration are reflected in a lower cost of doing business that is passed along to customers. That is because by limiting discovery and dealing with individual rather than class claims it “curtails the cost of the proceedings and allows swift resolution of small disputes.”); Provencher v. Dell, 409 F. Supp. 2d 1196, 1203 n. 9 (C.D. Cal. 2006) (“it is likely that consumers actually benefit in the form of less expensive computers reflecting Dell’s savings from inclusion of the arbitration clause in its contracts”); Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991) (“it stands to reason that passengers containing a forum clause … benefit in the form of reduced fares …”); Stephen J. Ware, Paying the Price of Process: Judicial Regulation of Consumer Arbitration Agreements, 2001 J. Disp. Resol. 89, 91-93 (2001); Richard A. Posner, Economic Analysis of Law 7 (6th ed. 2003).



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