Consumer Law & Policy Blog

The Mystery of Why Starbucks Changed its Arbitration Clause Solved?

Back in February, Gregory Gauthier wondered why Starbucks changed its arbitration clause. Now, he writes:

I was looking through the Q2 2016 Consumer Arbitration Statistics for the American Arbitration Association, and I found a case filed against Starbucks on January 18, 2016 (case #011600001646, row 5053).  The Colorado pro se consumer in that case brought an $825 claim.  Steve A. Miller (apparently based in Denver so the forum selection clause must not have been enforced) was appointed as arbitrator on April 25.  The case settled June 28 (which explains its appearance in the Q2 data).

So I think I've solved the mystery.  Starbucks must have been asked by the AAA to waive the offending provisions.  Instead of waiving them and having the waiver posted on the Consumer Clause Registry, Starbucks instead decided to amend the entire clause.  (The amended clause was listed March 28.)  So it appears safe to say that the Consumer Clause Registry directly caused the beneficial change to the arbitration terms.  (To be sure, there are still shortcomings with the registry, which is why I plan to propose that the CFPB start its own registry and review of financial services arbitration clauses.)

Schwartz Article on Scalia's Jiggery-Pokery in Arbitration

David S. Schwartz of Wisconsin has written Justice Scalia's Jiggery-Pokery in Federal Arbitration Law, Minnesota Law Review, Vol. 101, Headnotes 75 (2016). Here's the abstract:

"Jiggery-pokery," a phrase introduced into the U.S. Reports by the late Justice Scalia, is emblematic of Justice Scalia's style -- both his lively writing style and his penchant for criticizing his colleagues for judicial practices in which he frequently indulged himself. Though less well-known than his opinions in constitutional or administrative law, Justice Scalia's contribution to federal arbitration law is a prime example of his own jiggery-pokery in statutory interpretation. Federal arbitration law comprises the largely judge-made doctrine under the aegis of interpreting and applying the 1925 Federal Arbitration Act ("FAA"). Justice Scalia's impact in this area boils down to three recent and significant 5"4 majority opinions issued between 2010 and 2013. The purpose and effect of these decisions has been to winkle unconscionability doctrine out of the law of arbitration contracts, and to establish, at least for now, a legal regime in which arbitration clauses can be used by corporate defendants to immunize themselves from class actions. These decisions display reasoning that casts aside both doctrinal fidelity and logic to reach a desired result.

Consumerist Report on How the House Appropriations Bill Would Hurt Consumers by Preserving Class Action Waivers and Crippling the CFPB

Here. 

House Passes Appropriations Bill that Would Cripple the CFPB

by Jeff Sovern

Yesterday the House passed the financial services appropriations bill. Here is how the Appropriations Committee describes the bill's provisions pertaining to the CFPB:

The bill includes a provision to increase oversight over the CFPB by bringing funding for the agency under the annual congressional appropriations process, instead of direct funding from the Federal Reserve. This change will allow for increased accountability and transparency of the agency’s activities and use of tax dollars. The legislation also changes the leadership structure of the CFPB from a single Director to a five-member Commission, and requires the CFPB to study the use of pre-dispute arbitration prior to issuing regulations.

If it makes it into law, this structure would make it harder for the CFPB to respond nimbly to consumer financial problems, and risks paralyzing the Bureau, just as has happened to the Federal Election Commission. If the Bureau is subjected to the appropriations process (unlike other financial industry regulators), financial industry lobbyists would be able to lobby members of Congress to reduce appropriations if the Bureau vigorously protected consumers.  And the arbitration provision, coming after the Bureau already issued the most in-depth study ever of consumer arbitration, is obviously a pretext intended to block the proposed arbitration regulation. Each of these provisions is designed to help the financial industry at the expense of consumers while maintaining the illusion of having a neutral reason.

 

 

CFPB Director Cordray's CNBC Interview: Mortgage Lending, Auto Lending, Credit Card Lending Up

Here.  He also said that the final arbitration and payday lending rules will come out in the next year or so.

Pew Animation on Class Action Waivers and CFPB Proposed Rule

Here. 

Ware Article on The Politics of Arbitration and Centrist Proposals

Stephen J. Ware of Kansas has written The Politics of Arbitration Law and Centrist Proposals for Reform, 53 Harvard Journal on Legislation (2016).  Here is the abstract:

Arbitration law in the United States is far more controversial when applied to individuals than to businesses. While enforcement of arbitration agreements between businesses sometimes raises legal issues that divide courts, those issues tend to interest only scholars, lawyers, and other specialists in the field of arbitration. In contrast, enforcement of arbitration agreements between a business and an individual (such as a consumer or employee) raises legal issues that interest many members of Congress and various interest groups, all of whom have taken positions on significant proposals for law reform. The Consumer Financial Protection Bureau has extensively researched and reported on consumer arbitration agreements and is expected to issue a rule regulating, or even prohibiting, such agreements.

This Article both explains how issues surrounding consumer and other adhesive arbitration agreements became divisive along predictable political lines and introduces a framework to understand and compare various positions on them. This new framework arrays on a continuum five positions on the level of consent the law should require before enforcing an arbitration agreement against an individual. Progressives generally would require higher levels of consent than arbitration law currently requires, while conservatives generally defend current arbitration law’s low standards of consent.

This Article proposes a centrist position. It joins progressives in rejecting overbroad enforcement of adhesive arbitration agreements due to conservative supported anomalies in arbitration law’s treatment of contract-law defenses, legally- erroneous decisions, and class actions. Once these anomalies are fixed, though, this Article joins conservatives in defending general enforcement of adhesive arbitration agreements under contract law’s standards of consent because adhesive arbitration agreements should — contrary to progressive opinions — be as generally enforceable as other adhesion contracts. This Article briefly concludes by proposing language for a rule the Consumer Financial Protection Bureau could adopt to enact the reforms advocated in this Article.

My Arbitration Op-ed in the Pittsburgh Post-Gazette

Here.  Excerpt:

* * * Affected businesses are likely to sue (in court, ironically) to try to block [the CFPB arbitration proposal]. In a move that conjures up the famous scene from “Blazing Saddles” in which Cleavon Little takes himself hostage, the financial industry has threatened to abandon consumer arbitration altogether if the regulation takes effect. Thus, the Chamber of Commerce has written of its concern that consumers who have unique $25 claims that couldn’t be heard in class actions wouldn’t be able to arbitrate them.

(Never mind that this imaginary consumer — remember, consumers rarely bring $25 claims — could presumably still sue in small claims court). But even that wouldn’t be a problem unless arbitration benefits consumers; therefore, the industry claims that it does.

Except that it doesn’t. The CFPB study found that, on average, 6.8 million consumers a year obtain relief through settlements in consumer finance-related class actions in federal court. In contrast, it reported, about 600 consumer finance disputes were filed each year with the main arbitration provider. Even if consumers filed and won 1,000 times that many arbitration proceedings a year, federal class actions would still help more than 10 times as many consumers as arbitration in a typical year. That’s why class actions can deter misconduct while arbitration doesn’t.

 

 

House Financial Services Committee Chair Hensarling Releases Bill To Cripple Consumer Protection

by Jeff Sovern

Hensarling calls the bill the Financial Choice Act.  Make America Great for Banks Act is closer to the truth. Based on a quick look, the bill would give bank lobbyists power over the CFPB by subjecting it to the appropriations process, increase the likelihood of deadlocks by turning the Bureau into a commission, strip the agency of the power to stop abusive practices (evidently the financial industry should be able to abuse consumers), repeal the Bureau's power to regulate arbitration clauses, limit the Bureau's power to regulate payday lending (apparently debt traps are good), and limit the ability of the Bureau to protect consumers in other ways. The war on consumer protection continues.

 

Center for Progressive Reform: Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers

Martha T. McCluskey of SUNY Buffalo, Thomas Owen McGarity of Texas, Sidney A. Shapiro of Wake Forest, and James Goodwin and Mollie Rosenzweig, both of the Center for Progressive Reform, have written Regulating Forced Arbitration in Consumer Financial Services: Re-Opening the Courthouse Doors to Victimized Consumers.  Here's the abstract:

Forced arbitration clauses have become almost unavoidable in contracts for financial services and products ranging form credit cards to private student loans. This report examines how the financial services industry uses these clauses to defeat consumers' rights and evade accountability for their wrongdoing.

As the report explains, the forced arbitration process harms consumers by relegating them from the civil justice system to an inferior forum for vindicating their rights. In contrast to the courts, forced arbitration tends to be secretive, less independent of industry, more prone to erroneous and arbitrary rulings, more likely to discourage the pursuit of claims with procedural barriers, and more likely to provide inadequate relief for compensating victims of corporate wrongdoing.

The report examines the 2016 proposal by the Consumer Financial Protection Bureau (CFPB) to limit the use of forced arbitration clauses in contracts for financial services and products, and finds that the proposal is consistent with the agency's statutory obligation to protect consumers. The report goes on to explain that the CFPB would better fulfill its statutory mandate by revising its proposal to include stronger protections for consumers.