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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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DMEAST #22199841 v1 for plaintiffs to obtain class certification. 62 The Associations believe that these decisions decrease the likelihood that putative class members will benefit from the class proceedings, which in turn supports arbitration as a preferred method in the first instance for consumers to resolve their disputes with companies. 63 Fifth, the Bureau should consider whether the government enforcement section of the Study, which excludes the bulk of the Bureau’s own enforcement and supervisory actions, should be updated to include the Bureau’s enforcement and supervisory actions from January 1, 2013, to date and to take account of anticipated future enforcement activities. The Study examined federal and state enforcement actions from January 1, 2008, through December 31, Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013); Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011). See also C. Fisk & E. Chemerinsky, “The Failing Faith in Class Actions: Wal-Mart v. Dukes and AT&T Mobility v. Concepcion,” 7 Duke J. of Const.

Law & Pub. Policy 73 (2011) (“[i]n Wal-Mart v. Dukes … the Supreme Court revamped the law concerning … Rule 23 of the Federal Rules of Civil Procedure, allowing businesses to insulate themselves from class action suits ….”); R. Bone, “Class Actions and Access to Justice,” 82 Geo. Wash. L. Rev. 651, 654 (2014) (as a result of Wal-Mart and Comcast, “class certification has become more difficult to obtain”).

Moreover, in Spokeo, Inc. v. Robins, No. 13-1339 (cert. granted April 27, 2015), the Supreme Court agreed to review whether a plaintiff who cannot show any actual harm from a violation of the Fair Credit Reporting Act (FCRA) nevertheless has standing under Article III of the U.S. Constitution to sue for statutory damages in federal court.

The consequences of the Supreme Court’s eventual decision will likely extend significantly beyond FCRA litigation and affect numerous other statutes and the viability of class actions where alleged technical violations did not cause any actual harm. In addition to the FCRA, such statutes include the Truth in Lending Act, the Telephone Consumer Protection Act, the Electronic Fund Transfer Act, the Fair Debt Collection Practices Act, the Homeowners Protection Act, the Fair Housing Act, the Credit Repair Organizations Act, the Employee Retirement Income Security Act, the Lanham Act, the Americans with Disabilities Act, and the Video Privacy Protection Act. The Supreme Court’s ruling could also discourage the filing of class actions under those statutes. In countless class actions in federal court, the plaintiffs’ class action bar has obtained recoveries despite the absence of actual injury to the named plaintiffs and class members.

In addition, the Supreme Court recently agreed to review whether an unaccepted offer of complete relief to the named plaintiff made prior to certification of a class moots not only the plaintiff’s individual claims, but also the class action and deprives the court of federal subject matter jurisdiction. See Campbell-Ewald Company v. Gomez, No. 14-857 (cert.

granted May 18, 2015). A decision in that case could also make class actions harder to sustain.

DMEAST #22199841 v1

2012. 64 However, the Bureau did not report its first enforcement action until July 2012, and it has reported 47 enforcement actions in 2013, 2014 and to date in 2015. 65 Although the Bureau has been in operation less than four years, it would appear that its regulatory and supervisory activities are supplying what consumer advocates argue are the goals of class actions—providing redress for large numbers of consumers and the regulation of corporate behavior. Since the record of the Bureau’s regulatory and enforcement activities is just beginning to emerge, the Study should be updated to consider the Bureau’s enforcement activities from January 2013 to date. We believe they are reshaping the government enforcement landscape and significantly decreasing the alleged “enforcement” need for class actions. In July 2014, the Bureau stated on its website: “To date, our enforcement actions have resulted in $4.6 billion in relief for roughly 15 million consumers harmed by illegal practices.” 66 The Bureau also reported in its Supervisory Highlights of Winter 2015 that “recent supervisory resolutions [by the Bureau] have resulted in remediation of approximately $19.4 million to more than 92,000 consumers.” 67 Its more recent Supervisory Highlights of Summer 2015 report an additional $11.6 million to more than 80,000 consumers for a total of $31 million to 172,000 consumers for the combined periods. Analyzing just the enforcement action statistics, the Bureau’s enforcement efforts have resulted in an average payment of $305 to each consumer, approximately 10 times the $32.35 received by the typical putative class member in the class action settlements studied by the Bureau.

In addition, the Bureau has remedies and resources not available to plaintiffs’ class action lawyers, such as the Civil Penalty Fund. 68 Moreover, unlike class action lawsuits, when the Bureau acts, there is less potential conflict between consumers and the attorneys representing them in the ultimate resolution of the case. In private class action litigation, counsel for the class seeks a sizeable percentage of any recoveries obtained ($424,495,451, almost half a billion dollars, in attorneys’ fees in the limited class action data studied by the Bureau). 69 Notably, the $4.6 billion in consumer relief provided by the Bureau’s enforcement activities through July 2014 was not reduced by a half-billion dollars to pay attorneys’ fees.





Study, § 9, p. 9.

See http://www.consumerfinance.gov/administrativeadjudication/.

See http://www.consumerfinance.gov/blog/category/bureau-milestones/.

See Supervisory Highlights (Winter 2015) at http://www.consumerfinance.gov. The study notes that remediation numbers represent remedial actions that gave been completed “since the publication of the last issue of the Supervisory Highlights and during the period under review,” but does not indicate the date of the prior Supervisory Highlights.

See http://www.consumerfinance.gov/budget/civil-penalty-fund/.

Study § 8, p. 33.

DMEAST #22199841 v1 Updating the Study to include these statistics, and anticipated future enforcement and regulatory activities by the Bureau, is critically important since the Bureau’s robust enforcement activities reduce the need for class actions as a mechanism to protect consumers or discipline proscribed behavior. In the Study, the Bureau analyzed the extent of overlap between government enforcement and private class actions involving consumer financial issues. The Study concluded that “we were unable to find an overlapping private class action complaint in 88% of the enforcement actions.” 70 Thus, when the Bureau acts, it potentially eliminates or reduces the need for private class actions. Reducing the supposed need for class actions should also reduce any concerns that arbitration agreements may be harming customers because they impair class actions. Any new regulation of consumer arbitration before the impact of the Bureau’s enforcement activities on class actions is determined, and future enforcement activities by the Bureau are taken into account, would therefore be myopic.

Sixth, the Bureau should attempt to evaluate qualitatively the class actions it studied to determine whether the disputes involved were of a nature that would be likely to lead to certification. The Study seems to assume that if a class action is filed, it must be serious and legitimate for purposes of comparing class actions to arbitration. As discussed above, however, the Bureau’s own statistics reveal that 60% of the class actions studied were settled individually or were withdrawn by the plaintiffs.

These statistics are inconsistent with the Bureau’s assumption about the legitimacy of class actions, and they challenge the conclusion that class actions are useful as an enforcement tool. Even the finding that 15% of the class actions received final settlement approval does not establish that the class actions were certifiable, since many companies settle to avoid the enormous cost, burden, and distraction of protracted class action proceedings and the discovery process. At the very minimum, the Bureau should review the pleadings in the class actions it studied and report on the percent, if any, that involved disputes that were adequately systemic in nature and therefore reasonably likely to result in class certification.

Seventh, the Bureau should study whether and how a regulation affecting consumer arbitration would impact the ever-burgeoning national and international market of online dispute resolution services. (See note 9 supra).

Finally, because financial consumer arbitration is in its relative infancy, the Bureau should study analogous areas, such as employment arbitration, in which the use of arbitration has a lengthier history. Several earlier studies have concluded that employees fare well in arbitration and have high levels of satisfaction with the arbitral process. For example—

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DMEAST #22199841 v1

• One study dealing with AAA employment arbitration found that employees won 73% of the arbitrations they initiated and 64% of all employment arbitrations (including those initiated by employers). 71

• A study that compared the results in employment arbitration with the results in federal court during the same period of time found that 63% of employees won in arbitration compared to 15% of employees who won in federal court. Awards to employees in arbitration were on average 18% of the amount demanded versus 10.4% of the amount demanded in court. The study also demonstrated that while arbitration awards to employees were on average lower than judgments to employees in court, the outcome for employees was still better in arbitration because of their higher winrates of arbitration and the shorter duration of arbitration compared to court proceedings. 72

• In yet another study, it was reported that employees won 51% of arbitrations, while the EEOC won 24% of cases in federal court. 73

• Another study reported that employees won 68% of the time before the AAA as contrasted with only 28% of the time in litigation. 74

• A study examining employment arbitration in California concluded that consumers prevailed 71% of the time. 75

• A report comparing arbitration and litigation of employment claims found that higher-compensated employees (i.e., those with annual incomes of $60,000 or more) obtained slightly higher awards in arbitration before the AAA than in court. 76 Lisa B. Bingham, “Is There a Bias in Arbitration of Nonunion Employment Disputes?

An Analysis of Active Cases and Outcomes,” 6 Int’l J. Conflict Management 369, 378 (1995).

L. Maltby, “Private Justice: Employment Arbitration and Civil Rights,” 30 Colum. Hum.

Rights L. Rev. 29, 46-48 (1998).

G. Baxter, “Arbitration in Litigation for Employment Civil Rights?,” 2 Vol. of Individual Employee Rights 19 (1993-94).

W. Howard, “Arbitrating Claims of Employment Discrimination,” Disp. Res. J. Oct-Dec 1995, at 40-43.

“Consumer and Employment Arbitration in California: A Review of Website Data Posted Pursuant to Section 1281.96 of the Code of Civil Procedure,” California Dispute Resolution Institute (August 2004), available at www.mediate.com/cdri/ cdri_print_ Aug_6.pdf.

T. Eisenberg & E. Hill, “Arbitration and Litigation of Employment Claims: An Empirical Comparison,” Disp. Resol. J. Nov. 2003 – Jan. 2004, at 44.

DMEAST #22199841 v1

• A study compared the results of employment discrimination cases filed and resolved between 1997 and 2001 in the Southern District of New York versus arbitrations conducted by the NASD and NYSE. Employees prevailed 33.6% of the time in court versus 46% of the time in arbitration. The median damages award was $95,554 in court versus $100,000 in arbitration. The median duration was 25 months in court versus 16½ months in arbitration. The study also found that of over 3,000 cases filed in court, only 125 (2.8%) went to trial. 77

• A study of 171 employment arbitration cases filed with the AAA in 1992 concluded that there was no basis for believing that the arbitrators would favor employers who were repeat players. 78

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