Consumer Law & Policy Blog

Dasteel Article: CONSUMER CLICK ARBITRATION: A REVIEW OF ONLINE CONSUMER ARBITRATION AGREEMENTS

Jeffrey H. Dasteel of UCLA has written CONSUMER CLICK ARBITRATION: A REVIEW OF ONLINE CONSUMER ARBITRATION AGREEMENTS, 9 Arbitration Law Review 1 (2017).  Here is an excerpt from the conclusion:

Our review of websites with arbitration clauses, in-store transactions for retailers with brick and mortar outlets and online sales, and prior studies on whether online consumers review terms and conditions has led us to three basic conclusions regarding the quality of notice provided to consumers. First, the prior studies on whether consumers review online terms and conditions establish that actual notice of the arbitration clause in a set of online terms and conditions is the very rare exception. Instead, for purposes of contract formation, online providers of goods and services must rely on constructive notice.

* * *

With regard to clickwrap websites, the websites that show the terms and conditions on the same screen where the consumer is required to click a box accepting the terms and conditions provide more robust notice than the websites that require the consumer to click on a box accepting terms and conditions, but the terms and conditions are only available by hyperlink. The more robust notice certainly provides the consumer with reasonable notice that there are terms and conditions associated with the transaction. However, notification that there are terms and conditions associated with the transaction does not let the consumer know whether there is a separable arbitration agreement included within those terms and conditions.

Based on the studies showing that consumers do not click on terms and conditions and do not scroll through on-screen boxes that include the terms and conditions, we see no fundamental difference between the quality of notice provided in browsewrap and clickwrap websites regarding the existence of an arbitration requirement, except where the clickwrap terms and conditions include the arbitration warning in the same location as the requirement to accept the terms and conditions. This follows from the fact that regardless of whether a consumer is required to actively accept terms and conditions, consumers do not go through the further work to click on the terms and conditions hyperlink or to scroll through extensive terms and conditions to reach the dispute resolution clause. * * *

* * *

In the end, what is unsatisfactory about the current state of the law on enforcement of online arbitration clauses is that courts find it is sufficient to put a consumer on constructive notice of arbitration if the consumer must actively accept terms and conditions even though (1) the arbitration clause is hard to find in that it is hidden behind a hyperlink and preceded by myriad terms and conditions in a scrollable box, and (2) virtually no one goes through the effort of searching out the terms and conditions or scrolling through the box before completing the purchase. For a paper transaction, the arbitration clause must be conspicuous. For an online transaction, the consumer is supposed to go on a treasure hunt to find it.

(HT: Gregory Gauthier)

 

Debate on the CFPB's arbitration rule

The National Law Journal has published this debate/discussion between corporate litigator (and sometimes lawyer for the Chamber of Commerce lawyer) Andy Pincus and this blog's Deepak Gupta. (Possibly behind a paywall.)

Two professors discuss hot issues in class actions

In Class Actions in the Era of Trump: Trends and Developments in Class Certification and Related Issues, law profs Jack Coffee and Alexi Lahav just that. Here's the abstract:

In this memorandum prepared for the Annual ABA National Institute on Class Actions, Professors Coffee and Lahav review and assess developments in class certification over recent years, and track trends in approaches to certification. Special attention is given to securities litigation, the use of confidential witnesses, ascertainability, attorney's fees, standing, mootness, statutes of repose, and the impact of recent Supreme Court decisions, including Halliburton II and Spokeo. 

Senate Could Vote on CFPB Arb Rule This Week, Even Today

by Jeff Sovern

Why this week?  Deepak Gupta speculated on Twitter:

Why is GOP pushing this vote now? Possibly to get ahead of hearings next week at which Equifax and Wells Fargo execs will have to testify.

But if that's true, that means that arbitration supporters expect that those hearings will generate opposition to arbitration. That in turn means that senators who vote against the CFPB rule will put themselves in a worse position with their constituents by voting against the rule.  Is that really something they want to do? We may find out.

More Than 400 Professors From All 50 States Support CFPB Arb Rule; Oppose Blocking It

The letter is here.  Marketwatch has a report headlined 400 college professors say you should be able to sue Equifax and other financial institutions. Excerpt from the report:

The professors are sending the letter Monday because it is Sept. 25, the anniversary of when Congress passed the Seventh Amendment to the U.S. Constitution in 1791, which states: “In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved.”

And here are some quotes from a press release:

“Equifax’s massive data breach and the company’s effort to force people to give up their day in court are strong reminders of why Congress should not take away our 7th Amendment rights,” said Creola Johnson, the President's Club Professor of Law at the Ohio State University Moritz College of Law.

“143 million Americans were impacted by the Equifax data breach, making it unrealistic for them to get relief if they are forced to bring claims alone, one-by-one, in individual arbitrations,” said David Cluchey, Professor of Law Emeritus at the University of Maine School of Law in Portland.

* * *

As a scholar, I’m offended by the false claims by lobbyists that the average person wins $5,389 in arbitration,” said Professor Jean Sternlight, Saltman Professor of Law and Director of the Saltman Center for Conflict Resolution, University of Nevada, Las Vegas Boyd School of Law. “That number is based on only 16 people a year who pursued and won in arbitration. The vast majority of people won’t even pursue a claim against a big corporation alone and will get nothing if they can’t participate in a class action.”  And, added Sternlight, “in the very rare situation when consumers file arbitration claims against companies, they rarely win.”

Businesses using class actions against Equifax

Jeff noted a few days ago that a credit union had filed a class action against Equifax. This article (possibly behind a paywall) by Amanda Bronstad discusses that class action some detail, plus another as well. Here's an excerpt:

Summit Credit Union in Madison, Wisconsin, has brought a class action on behalf of all credit unions that have had to reimburse customers for fraudulent charges and forgo fees due to the breach, which has impacted 143 million people. [The law firm] Robins Kaplan brought that suit on Sept. 11 in federal court in Georgia. Another class action was filed on Sept. 19 by three businesses and their owners, including Justin O’Dell, a partner at O'Dell & O'Neal in Marietta, Georgia, who also owns three real estate companies. The business owners claim that the breach, which Equifax announced on Sept. 7, could impact their ability to get loans and lines of credit. It’s the first time that small businesses have sued over a data breach, said Jason Doss, the attorney who brought the suit in federal court in Georgia.

Report that CFPB Could Use UDAAP Powers House Has Voted to Repeal Against Equifax

by Jeff Sovern

Reuters has a report here.  Excerpt:

The U.S. consumer finance watchdog agency is expected to punish Equifax for its cyber breach with the wide-ranging powers it has used with Wall Street, former agency officials and lawyers said this week.

The credit-reporting company is subject to five federal laws governing listed companies, the use of public data and the fair treatment of customers, and the Federal Trade Commission and the Department of Justice are examining the hacking theft of personal information on up to 143 million people.

I haven't looked into the matter of whether the CFPB's UDAAP powers (the power to act against consumer financial institutions which commit unfair, deceptive, or abusive acts) extend to Equifax yet myself, and so found the remainder of the article instructive.  Both the House-passed Financial Choice Act and the House-passed appropriations bill would repeal the Bureau's UDAAP powers.

 

We need regulators—but they are not a substitute for class actions

by Jeff Sovern

A frequent claim by class action critics is that we don’t need class actions because we have regulators.  For example. Alan Kaplinsky recently tweeted that class actions were not needed in the wake of the Equifax scandal because the CFPB is expected to act.  But the truth is we need both regulators and class actions.

The CFPB arbitration study looked into the overlap between administrative actions and class actions. Here is an excerpt from the summary of the findings (section 9.1):

[F]or the private class actions for which we sought to find related public enforcement action, we were unable to do so in 68% of the cases. This was particularly the case with class action settlements of less than ten million dollars, where we were unable to identify a corresponding public enforcement action for 82% of the time.

When we did find overlapping activity by government entities and private class action lawyers, public enforcement activity was preceded by private activity 71% of the time. In contrast, private class action complaints were preceded by public enforcement activity 36% of the time.

President Trump will get to nominate a new CFPB director in less than a year, and it could happen in less than a month.  I very much doubt that a Trump-nominated director will bring the enforcement actions that a Director Cordray would; indeed, from the White House’s perspective, the failure to bring some such actions would probably be a plus.  Consequently, the CFPB may soon be much less protective of consumers, with the result that class actions may become even more important as a consumer protection device.

But what do class actions offer when an administrative agency also becomes involved?  Take Wells Fargo, for example.  By January 2010, the Office of the Comptroller had received 700 whistleblower complaints about Wells Fargo opening unauthorized accounts.  The OCC raised the complaints with Wells, but then dropped the matter and Wells employees continued to open unauthorized accounts.  Not much of a record for regulators there.  At some point, the CFPB began investigating, but it was obviously after the OCC’s failed intervention because Congress had not even created the Bureau at that time and the Bureau didn’t open its doors until the summer of 2011.  The first Wells class action was filed in 2015, and then in 2016, the CFPB, joined by the OCC and the LA City Attorney’s Office (which had sued Wells in 2015), entered into the famous consent decree.  I will say more about the consent decree in a moment, but first, I want to point out that the CFPB, under a Trump-nominated director, might lapse into the kind of torpor that the OCC suffered from in 2010.  Notice too that the class action antedated the CFPB consent decree. I have no reason to believe that the class action contributed in some way to the CFPB getting involved or helped in some way, but neither do I know that it didn’t.

The consent order directed Wells to pay redress to consumers who have “incurred fees or other charges.” Wells agreed to put aside $5 million for that purpose.  So then, why do we need a class action?

Well, first, the class action settlement (assuming it is finally approved in the form in which it has been preliminarily approved) is for at least $142 million.  I say “at least” because the settlement could grow by up to $25 million if it is determined that $142 million is not enough.  Quite a bit more than the $5 million pool under the consent order. While I suppose Wells might have ended up paying more than that $5 million under the consent order (I’m not sure what would have happened if it was determined that Wells owed more than $5 million), I am skeptical that Wells would have ended up paying more than 28 times that number.

The settlement appears to provide injured class members several benefits they would not have received under the consent order. First, unlike the consent order, the settlement provides that class members will get at least $25 million in non-compensatory damages.  Second while the consent order provided that Wells could recoup any of the $5 million that was not needed to compensate injured consumers, the class action provides that none of the $142 million is to revert to Wells. Any money left over after paying expenses, fees and the individual amounts due under the settlement will go to class members. Attorney’s fees are capped at 15%.  Third, the settlement provides damages to those who suffered injuries because their credit scores went down.  I’m not certain, but I don’t think that is true of the consent order because it seems limited to “fees or other charges,” and I think that means fees or other charges imposed by Wells, rather than, for example, higher interest rates charged by other lenders because of damaged credit scores. There may be other ways consumers benefit from the class action over the consent order as well, but those will do to make my point. 

In short, class actions often do not overlap with actions by regulators, and are likely to do so even less frequently under a new CFPB director, but even when they do overlap, may still benefit consumers. To be sure, class actions do not always benefit consumers, but overall, consumers are better off with them than without them.

CORRECTION: An earlier version of this post referred to a letter Ted Frank published in the Wall Street Journal. Ted has indicated in a comment (below) that I misinterpreted his letter, and so I have omitted the sentence. I apologize for the error.

Trump Administration creating another roadblock to enroll for health insurance coverage under the Affordable Care Act

Health reporter Phil Galewitz explains that 

The Trump Administration plans to shut down the federal health insurance exchange for 12 hours during all but one Sunday in the upcoming Obamacare open enrollment season. The shutdown will occur from midnight until noon every Sunday except Dec. 10. The Department of Health and Human Services will also shut down the federal exchange -- healthcare.gov -- overnight on the first day of open enrollment, Nov. 1. More than three dozen states use that exchange for their marketplaces. * * * The fact that HHS is now closing the site for a portion of each weekend upset many consumer advocates. Many working Americans — the prime target group for ACA insurance — might be shopping at just that time.

An HHS spokesperson says that this same type of shut down (for maintenance) happened during the Obama Administration. But Galewitz's reporting indicates that this claim is another Trump Administration lie -- that is, shut downs for maintenance under the last Administration were much shorter and less frequent.

Response to Trump Prosecutors’ Effort to Attack Peaceful Protests

by Paul Alan Levy

In my blog post yesterday about developments in the litigation over the search warrant to DreamHost, I recounted the encouraging signs from DC Superior Court Chief Judge Morin’s written order and colloquys with counsel during oral argument  at a hearing this week about his determination to protect the privacy rights of anonymous Internet users who communicated with the Trump inauguration protest web site, or who provided their names to activists so that they could receive updates from that web site. At the hearing, as readers can see from the hearing transcript that I linked from the blog post, the lawyer who appeared for the Government at that hearing assured the judge that he understood what the judge was demanding and that the Government would comply with the judge’s conditions in a new proposed order.

Just as I was ready to press “publish” on that blog post, the Government submitted its promised proposed order enforcing the warrant. I confess that I was horrified: that proposal was so far from what Judge Morin said he wanted, and so far from what Government counsel said he would deliver, that I was left wondering whether the problem is that the Trump Administration is represented in this case by a disingenuous lawyer, or whether the problem is that the new proposed order was prepared by other lawyers who were not at the hearing and also did not review the transcript of the hearing (which was not ready until very late yesterday afternoon). The proposed order is unsigned.