CFPB to Hold Field Hearing on Arbitration; Announcement Expected

The Consumer Financial Protection Bureau (CFPB) announced a field hearing in Denver, Colo., on October 7^th at 11am MDT. The hearing will focus on arbitration and will include comments from CFPB director Richard Cordray as well as from consumer groups, industry representatives and the public. No specific location has been announced.

The event is open to the public but requires an RSVP. Anyone who wants to go to the event should email cfpb.events@cfpb.gov with your full name and organizational affiliation.

insideARM Perpective

As we have come to learn, the CFPB tends to schedule field hearings when they have major announcements to make.

This field hearing will be particularly interesting to attorneys and credit grantors, for two reasons. If arbitration is limited, this may provide attorneys with more opportunities to file law suits. For credit grantors, the arbitration process has historically been less expensive than traditional litigation. Arbitration provisions were also used to limit class action lawsuits.

Chase and others used arbitration extensively until things erupted with the 2009 National Arbitration Forum (NAF)/Axiant LLC scandal. In the wake of a lawsuit and multiple law enforcement investigations, NAF was forced out of the debt arbitration business.

On March 10, 2015, the CFPB published a study, which it called “the most thorough empirical research in the space,” that was critical of arbitration clauses as a consumer tool for disputes with lenders and servicers. Many industry observers, as well as some academics, were – in turn – critical of the CFPB study. In August, Jason Scott Johnston and Todd Zywicki published a report which argued that the CFPB’s methodology and conclusions were flawed.  

They conclude that,

Public policy in the United States has long supported the use of arbitration and other means of dispute resolution as an alternative to litigation. Indeed, broad regulatory action by the CFPB that might nullify or discourage consumer arbitration could preempt what has become quite precise judicial supervision and fine-tuning of consumer arbitration clauses. Such ex post judicial supervision seems already to have changed the way that companies such as AT&T draft arbitration clauses, leading to arbitration procedures that are cheap and easy for consumers to pursue and that offer consumers large payments (in AT&T’s case, $10,000) when the consumer wins. Consumer arbitration is only in its infancy. It has tremendous promise. The CFPB’s Report provides no evidence for this promise to be aborted by expansive new CFPB regulation.

insideARM will monitor the October 7 hearing and report on any developments.