CFPB Readies Proposals on Consumer Arbitration

The Consumer Financial Protection Bureau is preparing to propose regulations addressing what it perceives as unfair and exploitative practices by organizations in their treatment of consumers.  In its snappily-titled October 7, 2015 Outline of Proposals Under Consideration and Alternatives Considered, the Bureau tentatively proposed to:

(1) bar class action waivers in mandatory pre-dispute arbitration clauses, rendering “inapplicable” any consumer arbitration agreement that purports to bar participation in a “case filed in court on behalf of a class” (but not, presumably, a case filed in arbitration on behalf of a class);

(2) require reporting to the CFPB of initial claim filings and written awards of consumer finance arbitration proceedings; and

(3) publishing the claims and awards thus gathered to the Bureau’s public web site. 


I support the tentative CFPB proposals, though I don’t know what’s so special about preserving judicial class actions as opposed to arbitrated ones.  It seems clear on its face that a consumer’s agreement (and I use that term broadly) to privately arbitrate, rather than publicly litigate, consumer claims should not be entwined with a separate agreement to waive the protections provided by F.C.R.P. 23, or by class-wide procedures offered by private providers of arbitration services.

As readers of this Blog know, I am reluctant to join the CFBP’s apparent endorsement of class actions as a preferred method of protecting consumers’ financial or legal interests.  I am fundamentally skeptical of any social benefits whatsoever arising from consumer-related (as distinct from civil rights-related) judicial class actions, and endorsement of one proposal does not imply endorsement of its corollary.

There may be another way to encourage fairer processing of small-claim, large-volume consumer disputes than class action waivers.  A few years ago, thanks to ever-clever Colin Rule, EBay and Paypal initiated web-driven consumer complaint processes that handle millions of claims a year, resulting in both customer satisfaction and marketplace integrity.  And about 10 years ago the EEOC entered into a Pilot Program pursuant to which employee claims relating to employers with reliable and fair internal dispute resolution programs were “referred-back” to those internal programs prior to EEOC action.  See  In this way, employers were incentivized to develop rational and fair programs that were consistent with public policy objectives and pre-approved by the agency, and employees were encouraged to use them.

I wish a similar thing would be part of the policy discourse in the consumer area.  That is, consumers asserting claims against companies who adopted appropriate internal complaint policies would be expected to exhaust those policies first.  As I have suggested elsewhere, such a policy might read something like:

If something goes wrong, call us up or email us and we’ll try to fix it.  We make our money from having satisfied customers and we’re going to do our best to keep you as a customer. If you’re dissatisfied with our offer to fix, however, and if you decide to take the matter to court or arbitration, and if the court or arbitrator says we owe you more than we offered you in the first place, then we’ll pay you triple the amount awarded, plus the costs of your filing the case and the fees you paid your attorney (as long as they were reasonable).

Aeons ago, as a litigation associate in a large New York firm, we successfully moved to dismiss a class action complaint against a national toy store chain, that alleged that the store sold board games with incomplete or sullied pieces – that is to say, they sold returns, packaged as new.  The attorney sought treble damages for consumer fraud on behalf of a class of all customers of all stores in the United States, plus fees, plus punitives, plus… blah blah blah.  The defense argument that prevailed was that the complaint itself alleged that customers could return defective products.  And indeed they could – the policy of the chain was that any toy sold by the chain could be returned to any store for any reason, with or without a receipt of purchase from that particular store, or indeed any receipt whatsoever.  So if any member of the class were damaged by purchasing a defective board game, all they needed to do was return it to the store and get a new one.  No fraud.  And no damages, by the way.

Are we, as a society, so lawyered up that folks can’t just fix broken things?

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