Over the vigorous objections of industry trade groups, on September 4, 2014, the Office of Management and Budget (OMB) approved the CFPB’s request to conduct a national telephone survey of 1,000 credit card holders as part of its study of the use of mandatory pre-dispute arbitration agreements in connection with consumer financial products and services.
The CFPB initially gave notice in June 2013 that it was seeking OMB funding for the survey. It provided a 30-day period for comments on the draft survey questions and the proposed methodology. In their comments, industry trade groups questioned the value and usefulness of any telephone survey. However, both industry and consumer advocates who commented agreed that if the CFPB did proceed with its telephone survey, it needed to substantially revise the proposed survey questions.
In response to those initial comments, on May 29, 2014, the CFPB gave notice that it had revised the survey, and it posted the revised survey for comment, along with a description of the proposed statistical methods to be utilized in the survey. The revised notice indicated that the survey will explore: (a) the role of dispute resolution provisions in consumer card acquisition decisions and (b) consumers’ default assumptions (meaning consumers’ awareness, understanding, or knowledge without supplementation from external sources) regarding their dispute resolution rights vis-à-vis their credit card issuers, including their awareness of their ability, where applicable, to opt-out of mandatory pre-dispute arbitration agreements.
The revised survey questions were generally less overtly hostile to arbitration than the original survey questions. Nevertheless, like the initial survey, the revised survey will not gather data regarding respondents’ post-fact satisfaction with arbitration or litigation proceedings. The CFPB stated that it is not seeking such data because of “the difficulty in finding consumers that have had personal experience with both forums.” This severely limits the usefulness and relevance of the telephone survey because post-fact satisfaction with individual arbitration compared with class action litigation is extremely relevant to the question of whether consumer arbitration is in the public interest.
In their earlier comments, industry trade groups had urged the CFPB to conduct “apples to apples” empirical research comparing the benefits that consumers derive from individual arbitration to the benefits they derive from class action litigation. In particular, they suggested that the CFPB study: (a) whether class actions provide meaningful benefits to individual consumers as compared with individual arbitration in terms of outcomes, duration, costs, ease of access and consumer satisfaction; (b) the costs and impact of class action lawsuits, including frivolous or nuisance class action lawsuits, on consumers, businesses and the courts; and (c) whether class actions are an efficient, cost-effective mechanism to ensure compliance with the law given the range of enforcement powers afforded to the CFPB and other state and federal enforcement authorities.
Accordingly, the trade groups had urged the CFPB to expand the proposed telephone survey to include questions concerning consumers’ satisfaction with individual arbitration as compared with class action litigation. A consumer who has prevailed in an individual arbitration within months of initiating the arbitration may have a much different perspective about arbitration than a consumer who has received a $5 check or a product coupon after many years of class action litigation, particularly if the attorneys for the class have received six or seven figures (or more) in attorneys’ fees.
Because a consumer’s actual experience with arbitration and class action proceedings is at least as important as a consumer’s awareness of the arbitration provision, if not more so, in ascertaining whether consumer arbitration is in the public interest, it was very disappointing that the revised telephone survey eschewed that important data. It is difficult to see how information concerning “the role of dispute resolution provisions in consumer card acquisition decisions” and “consumers’ default assumptions regarding their dispute resolution rights vis-à-vis their credit card issuers” will help the CFPB determine whether arbitration provisions in consumer financial services products actually benefit consumers, especially when compared with class actions.
Comments on the revised telephone survey were due on or before June 30, 2014. Industry trade groups once again submitted comments criticizing the revised survey. They strongly recommended that OMB not approve the proposal “because it will not produce information of practical utility, remains materially flawed, and is inconsistent with the statutory mandate.” Instead, these groups recommended that the CFPB “focus on obtaining important consumer information related to arbitration, including information with more utility than it seeks to obtain from this survey, through more effective means rather than through a telephone survey.” In particular, they urged the CFPB to find alternative ways to capture data that would compare how consumers benefit from arbitration as opposed to class action litigation.
Nevertheless, the CFPB now has OMB approval to proceed with the revised consumer telephone survey. The CFPB estimates that the telephone survey will take 645 hours. This suggests that it could be concluded before the end of 2014, which is the CFPB’s target date for completing its consumer arbitration study.
The CFPB’s arbitration study was mandated by Congress in Section 1028 of the Dodd-Frank Act. Section 1028 also authorizes the CFPB to “prohibit or impose conditions or limitations on the use of” such agreements based on the study results. In April 2012, the CFPB published a request for information about the scope, methodology and data sources for the study. In December 2013, the CFPB published preliminary study results. This past April, at the 19th Annual Consumer Financial Services Institute in Chicago (which Alan Kaplinsky co-chaired), Will Wade-Gery (who is managing the study for the CFPB) indicated that the study will be completed by the end of this year.