About a hundred people attended the “field hearing” on arbitration held by the Consumer Financial Protection Bureau (“CFPB”) on Wednesday, October 7 at the History Colorado Center in Denver, Colorado.
The entire event lasted about two hours and proceeded in three segments: an opening statement by CFPB Director Richard Cordray; a panel discussion comprised of three CFPB staffers, two industry representatives, one non-consumer academic and three consumer/academic representatives; and, finally, a scheduled segment for two-minute comments from members of the audience. There was a livestream (webcast) of the program and a recording of the event will be posted on the CFPB Website soon.
As we reported in SAA 2015-37, the Bureau used the hearing as a platform to announce its intention to use its Dodd-Frank authority to: 1) ban class action waivers (“CAWs”); and 2) collect and possibly publish claim and award data. The announcement stopped short of a ban on predispute arbitration agreements (“PDAAs”) for now. It was summarized in a pre-hearing statement on the CFPB Website, and is described more fully in a 34-page outline. Director Cordray said in his remarks that the rule, once formulated and approved, “would apply generally to the consumer financial products and services that the Bureau oversees, including credit cards, checking and deposit accounts, certain auto loans, small-dollar or payday loans, private student loans, and some other products and services as well.” It would eliminate the “free pass” businesses now enjoy for evading class actions, and restore the consumer’s right to redress.
Consumer Reps Generally Supportive
The consumer advocate camp’s views can be summed up as “CFPB’s action is a good first step, but more needs to be done.” Specifically, the consumer advocates praised the CFPB’s intention to ban CAWs in contracts for consumer financial products and services, but urged that it eventually ban mandatory PDAAs. The phrases “free pass” and “forced arbitration” were used frequently. Professor Jean Sternlight, Director of the UNLV Saltman Center for Conflict Resolution, was “delighted” that CFPB was addressing CAWs, which she described as “the most harmful aspect of mandatory arbitration.” Class actions, she stated, not only can protect large groups of consumers, but also deter bad conduct by businesses. Ira Rheingold, Executive Director of the National Association of Consumer Advocates, praised the CFPB for its “extensive and important study of forced arbitration” and intention to ban CAWs, but said that the Bureau needs to go further by banning PDAAs. He added that it is very difficult for consumers to find attorneys willing to take individual cases involving small amounts. Jose Vasquez, Supervising Attorney at Colorado Legal Services, observed that there was a lack of consumer awareness of PDAAs, which in his view has had “an adverse impact” on low-income consumers.
Industry Camp: Class Actions are No Panacea
Alan S. Kaplinsky from Ballard Spahr (PA) began the discussion, stating that he was “very troubled” by CFPB’s approach. The proposed CAW ban, he predicted, would mean the end of consumer arbitration. “It’s a de facto ban,” he said. “Let’s call it what it is.” He contended that CFPB’s own data “vividly demonstrates” that consumers don’t benefit from class actions, but lawyers – on both sides – do. Professor Stephen Ware of the University of Kansas School of Law, agreed that firms will abandon arbitration if CAWs are barred, so the consumer will be left to individual litigation or being in the class and getting a very small return. He asserted that CFPB’s own data shows that this would be “very harmful” to consumers, and closed with a “plea for a centrist, cautious middle ground” approach. John Ruby, Senior Vice President of the Denver-based Bellco Credit Union, stated that PDAAs for his credit union were a “non-issue,” and that Bellco had never had or been threatened with class action litigation.
After initial presentations, the CFPB staff asked questions of each of the panelists and, following their answers on specific topics, the moderator conducted a “lightning round” in which each panelist offered views on alternatives to class actions.
Commenters were permitted to sign up ahead of time if they wanted to offer their testimony or views to the Bureau staff. Approximately thirteen people gave short statements during this “Open Mic” session and not one offered views supportive of arbitration. The speakers identified themselves as attorneys who represent consumers, consumer advocate group officials, class action lawyers, and individual consumers. Several speakers echoed the consumer reps’ “good first step but PDAAs should be banned” mantra, and described CAWs as a “get out of jail free card.” Several commenters told stories about bad experiences with arbitration in general, and in particular under Colorado’s home construction defect arbitration program. Paul Bland, Executive Director of Public Justice, added that individual arbitration is bad for consumers because companies are free to designate any arbitration provider. He contended that already there’s a trend away from using the AAA and other well-known ADR providers, toward unknown “Fred’s Arbitration Services” providers. The staff closed the hearing by encouraging individuals to alert CFPB to developments and problems by using the Bureau’s “Tell Your Story” link.
(ed: *As we stated in SAA 2015-37, the next steps in the rulemaking process are as follows: CFPB, the Office of Management and Budget, and the Small Business Administration Office of Advocacy will convene a Small Business Review Panel “to consider the potential impact of the proposals the Bureau is considering on small businesses. Following completion of the Panel process, consideration of the Panel’s recommendations, and other stakeholder outreach, the Bureau expects to commence rulemaking.” **For more information on CFPB’s plan and what it might mean for securities arbitration, see SAC Board of Editors Member George Friedman’s guest blog post, “Surprise, Surprise! CFPB to Propose Arbitration Regs that Look Very Similar to FINRA’s Arbitration Program….)”.) (SAC Ref. No. 2015-38-03)
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