Consumer Law & Policy Blog

Law Professor Letter Supporting Arbitration Rule in the Works

by Jeff Sovern

Jean Sternlight of UNLV is circulating an impressive and well-argued letter for law professors to sign supporting the CFPB's proposed arbitration regulation.  According to my count, 139 have already signed it.  If you would like to add your name to the list, please email Jean at jean.sternlight@unlv.edu no later than May 20.

Paul Bland's HuffPo Arbitration Column: The CFPB Just Took a Huge Bite Out of Predatory Lending

Here.

Chamber of Commerce Letter on Arbitration: Does it Make the Case for Class Actions?

by Jeff Sovern

Earlier today, the US Chamber of Commerce released a letter to CFPB Director Richard Cordray from David Hirschmann, President and CEO, Center for Capital Markets Competitiveness, urging the Director to address certain issues at Thursday's CFPB arbitration field hearing. Here's one of those issues, as stated in the letter:

[T]he public would benefit if your remarks were to include a discussion of how a consumers with a small claim based on unique circumstances would be able to vindicate those legal claims if companies, faced with the need to reserve millions of dollars for class action defense, were to cease subsidizing consumer arbitration programs. Under the current class action litigation rules, many small claims that involve issues that customers actually care about, such as alleged overcharges or the failure to credit a deposit on time, are unlikely to be classable because they are individualized disputes. For these claims, consumers will therefore have virtually no economically rational options for seeking redress: arbitration (in which most companies pay for consumers to bring claims against them, making it free to the consumer) will be gone; class action litigation will not be available; and rational consumers are not going to pay a $400 filing fee to pursue a $25 claim in court. Taking the opportunity to highlight how consumers will obtain redress for these types of claims would be very helpful in advancing the discussion.

I'm going to assume for this blog post that the industry would indeed no longer use arbitration if they couldn't combine it with class action waivers.  Would consumers really suffer if they couldn't bring arbitration claims for $25?  Well, the CFPB study found that consumers almost never bring arbitration claims when less than $1,000 is at issue, so the ability to assert small claims in arbitration isn't worth much.  But if consumers want to bring $25 claims, they could still do so in small claims courts (I would be curious to hear about small claims courts that charge a $400 filing fee for a $25 claim).  So even if arbitration goes away, consumers would lose something they don't use and don't need when it comes to small claims.

Perhaps the most notable part of the paragraph is its concession that consumers will not devote substantial resources to winning $25 claims. That is precisely why we need class actions to protect consumers against being taken advantage of in small amounts: so that companies will be deterred from bilking consumers in amounts too small to justify consumers investing resources in stopping them.

 

Gold Article on Compensation's Role in Class Actions

Russell M. Gold of NYU and Wake Forest has written Compensation's Role in Deterrence, forthcoming in 91 Notre Dame Law Review (2016). Here is the abstract:

There are plenty of non-economic reasons to care whether victims are compensated in class actions. The traditional law and economics view, however, is that when individual claim values are small, there is no reason to care whether victims are compensated. Deterring wrongdoing is tort law’s primary economic objective. And on this score, law and economics scholars contend that only the aggregate amount of money that a defendant expects to pay affects deterrence. They say that it does not matter for deterrence purposes how that money is split between victims, lawyers, and charities. This Article challenges that claim about achieving tort law’s primary objective and argues that there is an economic reason to care whether victims are compensated in class actions. It offers reason to think that compensating victims deters more wrongdoing than the same amount of relief in other forms, at least in damages class actions.

Put a different way, this Article contends that the primary objectives of class actions — compensation and deterrence — are intertwined in ways that scholars have not previously recognized. Compensation affects the amount of reputational harm that class actions inflict on defendants, and anticipating that reputational harm provides a source of deterrence. Because the public values compensating victims in civil litigation, if class actions were frequently to slight compensation that would undermine public perception of the class device; class actions would come to seem more like plaintiffs’ lawyers’ extortion mechanisms than legitimate means of redressing harm. Diminished procedural legitimacy makes the class action a less powerful signal about the validity of the underlying claims, which undermines reputational deterrence.

Erichson Article on Class Action Settlement Issues

Howard M. Erichson of Fordham has written Aggregation as Disempowerment, 92 Notre Dame Law Review (Forthcoming).  Here is the abstract:

Class action critics and proponents cling to the conventional wisdom that class actions empower claimants. Critics complain that class actions over-empower claimants and put defendants at a disadvantage, while proponents defend class actions as essential to consumer protection and rights enforcement. This article explores how class action settlements sometimes do the opposite. Aggregation empowers claimants’ lawyers by consolidating power in the lawyers’ hands. Consolidation of power allows defendants to strike deals that benefit themselves and claimants’ lawyers while disadvantaging claimants. This article considers the phenomenon of aggregation as disempowerment by looking at specific settlement features that benefit plaintiffs’ counsel and defendants without benefiting class members. Recognizing that protection of disempowered class members lies with judges who review settlement agreements, the article identifies red flags to alert judges to problematic settlements and fee requests. By showing how certain settlement features reflect defendants’ cooption of the power of aggregation, the article offers a framework for thinking about class action power dynamics in the age of settlement.

 

 

CFPB Announces Arbitration Field Hearing

Here.  Because the Bureau usually combines field hearings with announcements of related developments, it is likely to announce its proposed arbitration rules that day. 

Al Jazeera Report on Arbitration

 

BloombergNews: Ted Frank: Lightning Rod for Class Settlement Storms

Here.  Excerpt:

Greed is undermining class actions, according to Ted Frank, founder and director of the Center for Class Action Fairness in Washington.

Consumer and other class settlements often pay more to trial lawyers than to their clients, Frank says, and he's devoted his professional life to fighting that trend.

Frank is an objector—a lawyer for class members who claim excess attorneys' fees or other settlement terms siphon benefits from consumers—and he says he fills a void.

The New Yorker on the Impact of Scalia's Death on Class Actions and Arbitration

Here. Excerpt:

[M]any of the Roberts Court’s most important business cases were decided by a 5–4 margin, with the five conservative Justices voting as a bloc. And, as [Vanderbilt law professor Brian] Fitzpatrick points out, “Scalia has done more than any other justice in making it difficult for consumers and employees to bring class-action suits. So his absence alone may make a difference.”

(HT: Eric Sanders)

 

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

On HuffPo.