Some Comments on Comments on the CFPB Arbitration Study

by Jeff Sovern

Earlier this week, I posted a link to the Ballard Spahr comments, on behalf of various industry trade associations, on the CFPB Arbitration Study .  Their thesis is that the Bureau Study indicates that consumers fare better in arbitration than litigation in general and class actions in particular. For example, here is one excerpt from their comments:

Consumers who received cash payments in class action settlements obtained an average of only $32.35. * * *

By contrast, customers who prevailed in arbitration recovered an average of $5,389, compared to the $32.35 obtained by the average class member in class action settlements. Thus, the average customer who prevailed in arbitration received 166 times more in financial payments than the average class member in class action settlements.

Sounds like a big difference, except for one thing.  In the words of Director Cordray introducing the study:

For those consumers who do use arbitration, we observed that very few of them filed arbitration claims for small-dollar amounts. For example, there are almost no disputes over amounts less than $1,000.

And here's a quote from the Study itself (Section 1, p. 12):

The average consumer affirmative claim amount in arbitration filings with affirmative consumer claims was around $27,000. The median was around $11,500. Across all six product markets, about 25 disputes a year involved affirmative consumer claims of $1,000 or less.

Unfortunately, the CFPB was not able to gather much information about class action claim amounts.   But class actions are often brought to compensate individual consumers in amounts much smaller than $1,000, an amount that evidently is not even enough to cause consumers to file for arbitration.  In other words, the Ballard Spahr comments show that when consumers bring arbitration claims averaging $27,000, and almost never for under a thousand, they recover larger amounts than they do in class actions in which individual consumers have suffered far more modest damages.  Not exactly a surprise. Such an apples-to-oranges comparison is hardly evidence that consumers do better in arbitration than in class actions.