Consumer Law & Policy Blog

Paul Bland: Notorious RBG Offers Hint to Whether Post-Scalia Court Will Be Better for Workers, Consumers

On HuffPo.

More Dramatic Times Coverage of Arbitration Clauses: This Time, It's Nursing Homes

Here. A heart-breaking story.

 

The Economist Compares US and EU Consumer Dispute Resolution

Here. (HT: Gregory Gauthier)

Bloomberg Story on CFPB's Arbitration Rule-Making

Here (behind paywall, unfortunately).  Excerpt:

When the CFPB may [issue its arbitration rule] is unknown. A spokesman told Bloomberg BNA that the bureau continues to gather information from stakeholders on the arbitration rulemaking. A final regulation is unlikely to take effect before late 2017 or 2018, Joe Olson, a partner and class action defense specialist with Michael Best & Friedrich LLP, told Bloomberg BNA. The 2010 Dodd Frank Act calls for a 180 day interim from final action on an arbitration rule to its effective date.

 

 

Drahozal Article on Confidentiality in Arbitration

Christopher R. Drahozal of Kansas has written Confidentiality in Consumer and Employment Arbitration, 7 Yearbook on Arbitration & Mediation ___ (forthcoming 2015). Here is the abstract:

This article examines an apparent misperception among some commentators about the confidentiality of consumer and employment arbitration in the U.S. Arbitration is a private process—i.e., the public cannot attend an arbitration hearing—and arbitrators and arbitration administrators are (with some exceptions) required to keep information about arbitrations confidential. But the parties to the arbitration agreement are not subject to an obligation of confidentiality. Either party can disclose the existence of the dispute and any underlying facts, the existence of any arbitration proceeding, and any information about or provided in the arbitration proceeding, including the arbitral award. Only if the arbitration clause also includes a confidentiality provision are the parties subject to a confidentiality obligation, as set out in their agreement.

Accordingly, criticisms of the confidentiality of arbitration, and in particular that arbitration clauses enable businesses to hide wrongdoing, are at best overstated and at worst misguided. They are overstated because information about disputes remains available, not from the court system but from the parties themselves. When a dispute is subject to arbitration, interested persons are not able to obtain filings and other information from the court clerk like they could if the case was in court. In the rare case that would have gone to trial, the public is not able to watch. But the parties continue to be able to disclose the same information they can disclose without an arbitration clause. The criticisms are misguided because they direct attention toward arbitration clauses and away from confidentiality provisions, which seem to be the real source of many commentators’ complaints.

(HT: Gregory Gauthier)

TheStreet's Susan Antilla on the Chamber of Commerce

Here.  An excerpt:

 

[The Chamber] slammed the U.S. Securities and Exchange Commission for sometimes pursuing violators of securities law in the comfort of its in-house courts rather than try the cases in the public courts.

There are "substantial differences" in the processes used in the two forums, the Chamber's Center for Capital Markets Competitiveness wrote on its Web site in July. Those differences can impede the pursuit of "a full, fair and impartial adjudication," according to the Chamber.

A fix suggested by the Chamber is for the SEC to offer enforcement targets the option of having a case heard in federal district court, which sounds fair enough to me.

* * *

But giving choices to litigants appears only to be fair game when it suits the Chamber and its members, who, no doubt, see advantages to using the courts if the SEC is after them, but avoiding the courts if their customers sue.Little surprise that when consumer advocates suggest the public should have the option of going to court when they file complaints -- instead of being compelled by a company to arbitrate -- the Chamber suddenly thinks it's fine to forego the due process that court provides.

More on Debt Collection and Arbitration

by Jeff Sovern

Richard posted a link last week to the Times article about how debt collectors first sue in court and then when consumers sue them, use arbitration clauses to block the consumer law suit.  Today the Times published four letters responding to the article, including mine. I want to comment on two of the other letters. Joseph H. Weber wrote:

Class-action litigation is certainly not the answer. The only people who benefit from class-action litigation are the lawyers.

One problem with this assertion is that it overlooks that class actions deter misconduct.  To the extent that they do so, consumers of the product benefit even if they do not obtain redress themselves. Weber also wrote:

There are other options for people who believe they are being cheated by debt collectors in addition to arbitration, such as disputing the original claim in small claims court.

Except that consumers don't always know that they have been sued in the first place, as was reportedly true of the consumer described in the article's lead. It's hard to defend against a claim that you don't know about.

Another letter-writer, Eric Hodson, urged Congress to "pass legislation requiring that any consumer credit agreement include a prominent warning that the consumer will be confined to arbitration of any disputes, and that arbitration can be expensive and the outcomes usually favor the business over the consumer."

But our arbitration study found that consumers generally did not understand arbitration clauses and many did not think they could take away their right to sue.  In fact, considerable empirical evidence indicates that consumer disclosures are ineffective.  Perhaps it is possible to write an effective disclosure along the lines Hodson suggests, but no evidence suggests that it is, and a fair amount of empirical evidence suggests that it is not.

A Reply to Alan Kaplinsky's Comment on My Claim about the Industry's Supposed Love of Arbitration

by Jeff Sovern

In a recent American Banker essay, I argued that businesses praise arbitration not because they genuinely value it, but because it enables them to block class actions.  I said that for two reasons: first, that if businesses truly believe arbitration is superior to litigation, as they say they do, they should prefer arbitration even for resolving disputes in individual actions when class actions are not available.  Yet financial industry organizations have stated that if they cannot use arbitration to block class actions, they will not use arbitration at all in consumer disputes. Second, a study found that in business-to-business contracts, where class actions are rare and so not relevant to deciding whether to use arbitration, companies use arbitration clauses far less often than in their consumer contracts, suggesting that they don’t see value in arbitration except when class actions are a possibility.

In return, Alan Kaplinsky, a leading arbitration advocate and financial industry lawyer, responded in an American Banker piece of his own. But he never actually grapples with my claim that the actions of businesses show they prefer litigation to arbitration when class actions are off the table.  In fact, his argument proves my point.

First, Mr. Kaplinsky argued that “arbitration is superior to class action litigation for consumers and companies alike [emphasis mine].” The Consumer Financial Protection Bureau study disagreed, but I understand that Mr. Kaplinsky claims the bureau went off the track on that one.  However, my essay was based on what businesses want to do with disputes when class actions are not involved. As I noted above, they want to litigate, not arbitrate. 

Second, Mr. Kaplinsky wrote that I said “the evidence points to few individual arbitrations occurring in the first place.”  He then stated that there had been thousands of such individual actions, including the 1,750 the CFPB studied.  Well, that might have been a good argument if I had actually said that few individual arbitrations have occurred. Except that I didn’t.  It’s irrelevant.

Moving on from that straw man, Mr. Kaplinsky says that businesses incur extra expenses in defending claims in arbitration and that they would not be willing to incur those expenses if they must also pay for class actions.  In other words, Mr. Kaplinsky agrees that if arbitration clauses can’t prevent the use of class actions, business won’t want to use arbitration.   But as I said in my original piece, if businesses genuinely believe arbitration is superior to litigation, shouldn’t they choose arbitration whenever they can, whether or not it enables them to avoid class actions?

But what about the arbitration expense Mr. Kaplinsky cites?  Is that the explanation?  Ask yourself why businesses are willing to assume that expense now.  It’s not to sell their products: no business advertises that you should choose them because they pay for arbitration if you have a dispute with them.  Rather, it’s because they get some other benefit out of assuming that expense. And that benefit, of course, is blocking class actions. What else could it be?

In short, businesses prefer arbitration because, as CFPB Director Richard Cordray said, it gives them a “free pass” to avoid accountability to their customers. It enables them to block class actions.  Maybe it’s time they admitted it.

Times: Bipartisan Bill Would Protect Service Members’ Right to Avoid Arbitration

Here.

S.I Strong Chapter: Incentives for Large-Scale Arbitration

S.I. Strong of Missouri has written Incentives for Large-Scale Arbitration: How Policymakers Can Influence Party Behaviour.  Here's the abstract:

At this point, the future of large-scale arbitration (i.e., class, mass and collective procedures) can best be described as mixed. On the one hand, class arbitration has been curtailed in the United States as a result of various US Supreme Court decisions upholding waivers of large-scale suits in arbitration. On the other hand, mass and multiparty arbitration in investment proceedings appears to be on the rise. Collective arbitration seems to exist somewhere between these two extremes, since there are an increasing number of collective procedures around the world (for example, various types of collective arbitration can currently be found in Spain, Germany and the United States) but parties appear to use such mechanisms relatively infrequently.

The uneven status of large-scale arbitration raises the question of why parties and states choose to use or develop class, mass or collective procedures. To answer this question, it is necessary to analyse the legal and social environments in which these procedures exist to determine whether parties have sufficient incentives to pursue large-scale arbitration and whether states can or should do more to promote these forms of dispute resolution.

This chapter attempts to address these concerns by considering the use and availability of incentives for large-scale arbitration and in particular whether and to what extent lawmakers can or should seek to influence party behaviour through default rules and other policymaking tools. In so doing, this chapter attempts to provide parties, practitioners and policymakers with a better understanding of how class, mass and collective arbitration operate within various legal and social environments and how the choice of certain legal frameworks can optimize both public and private values.