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Prominent industry trade groups nix CFPB’s proposed telephone survey of consumers

Posted in Arbitration

As part of its on-going study of consumer arbitration mandated by the Dodd-Frank Act, the CFPB announced on June 7, 2013 that it is seeking funding from the Office of Management and Budget to undertake a telephone survey of 1,000 credit card holders to ascertain their awareness of and perceptions regarding the arbitration provisions in their contracts. The CFPB’s proposal consists of two phases: (1) a period of 60 days (which ended on August 6) to comment on the initial draft of the CFPB’s consumer telephone survey questionnaire and its plans for gathering the data; and (2) after the CFPB refines its proposal based on the comments received during the first phase, a period of 30 days to comment on the revised proposal.

Notably, the American Bankers Association, the Consumer Bankers Association and The Financial Services Roundtable submitted comments that urged the CFPB “not to proceed with the proposed survey” because it “is flawed in concept and execution.” In particular, the industry groups argue, the telephone questions are “lengthy and complex” and will not elicit information that is meaningful in determining whether consumer arbitration is “in the public interest and for the protection of consumers,” the mandate of Section 1028(a) of Dodd-Frank. According to the industry groups, the CFPB’s proposed survey questions “offer little if anything in evaluating how arbitration actually functions” and shed no light on the critical question of whether consumers fare better if they resolve disputes using individual arbitration or as part of a putative class. The industry groups cautioned the CFPB that the survey in its current form “has the real potential to result in rulemaking on arbitration that would be based on inaccurate data and conclusions.”

Comments submitted by the U.S. Chamber of Commerce were equally critical, asserting that the CFPB’s “planned collection of information is not a sensible use of taxpayer resources” and “an unjustified intrusion on the time of potential survey respondents.” According to the Chamber, “[i]t is inconceivable that respondents selected at random could possibly have sufficient information and experience with dispute-resolution mechanisms to assess arbitration and litigation on an objective basis, and respondents’ uninformed views are not at all relevant to answering [the] question” whether limiting or restricting arbitration would serve the public interest and protect consumers. The Chamber urged the CFPB to study consumers’ comparative outcomes in arbitration and litigation instead of undertaking the proposed telephone survey.

Consumer advocates submitted comments of a different stripe. For example, the National Association of Consumer Advocates (NACA) applauded the CFPB for undertaking the survey, arguing that it “will provide an opportunity for the Bureau to further demonstrate with its own research that consumers are unaware of the existence and impact of the arbitration clauses that they are forced to sign as a condition of obtaining a credit card.” But even NACA acknowledged that the draft survey questions were “long and verbose” as well as “repetitious.”

Thus, both industry and consumer advocates agree that if the CFPB does proceed with its telephone survey, it needs to substantially revise the proposed survey questions. Indeed, one of the proposed questions asks consumers whether they prefer a credit card that would allow them to sue the credit card company in court if a dispute arose and “to participate in court-approved class action proceedings” or a credit card that would “prevent” them from participating in class actions against the company and “force” them to have an arbitrator decide the dispute. The question, on its face, is loaded to create a negative impression of “forced” arbitration and a positive impression of “court-approved class action proceedings.” The real issue, as several commentators emphasized, is how consumers actually fare in individual arbitration as opposed to court litigation and, in particular, class action litigation.

Moreover, as the Chamber observed in its comments, questions about consumers’ knowledge of arbitration provisions in credit card agreements cannot be evaluated in a vacuum since there are also numerous other key terms in such agreements. To put information about arbitration provisions in context, consumers’ knowledge of other core contract terms such as interest rates and annual fees should also be assessed.

Whether the CFPB has taken these comments to heart will be evident when it circulates a revised proposal on the telephone survey. At that point, additional comments on the revised proposal will be solicited.

For more on the CFPB’s proposed arbitration study, see our June 6, June 12, and June 25 blog posts.