The Consumer Financial Protection Bureau announced today that is has initiated its study of consumer arbitration as mandated by Section 1028 of the Dodd-Frank Act. It submitted to the Federal Register for publication a “Request for Information Regarding Scope, Methods, and Data Sources for Conducting Study of Pre-Dispute Arbitration Agreements.” The CFPB described the Request as “a preliminary step in undertaking the study.”

Section 1028 requires the CFPB to “conduct a study of, and to provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covered persons and consumers in connection with the offering or providing of consumer financial products or services.” Section 1028 goes on to provide that the CFPB “by regulation, may prohibit or impose conditions or limitations on the use of [such] an agreement” if the CFPB “finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers.”

The Request asks the public to submit comments on or before June 23, 2012, on four main topics dealing with the scope, methodology and data sources of the study: 

  • The prevalence of pre-dispute arbitration agreements in consumer financial services products (other than credit card agreements, on which the CFPB already has data)
  • Claims brought by consumers against financial services companies in arbitration
  • Claims brought by financial services companies against consumers in arbitration
  • The impact of pre-dispute arbitration agreements on consumers outside particular arbitral proceedings

For guidance, the Request poses a series of specific questions within each topic. The CFPB may consider soliciting further feedback based upon the information it receives in response to these questions.

Earlier empirical studies have demonstrated that consumers who go through arbitration prefer it to the court system as a way of resolving disputes with companies. The studies also show that consumers actually do better in arbitration than they do in court. The glaring omission from the CFPB’s Request press release is that it fails to mention class actions or the U.S. Supreme Court’s landmark Concepcion opinion. That is disappointing since most of the opponents of consumer arbitration are plaintiffs’ class action lawyers who are trying to preserve their livelihood at the expense of consumers. The CFPB should also focus on whether class actions are a better alternative for consumers than arbitration.

Ballard Spahr’s Consumer Financial Services Group pioneered the use of pre-dispute arbitration provisions in consumer financial services agreements. It is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance.

The group produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. For more information, please contact Practice Leader Alan S. Kaplinsky, 215.864.8544 or kaplinsky@ballardspahr.com, or Mark J. Levin, 215.864.8235 or levinm@ballardspahr.com.


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