Arbitration Agreements

Federal RegisterMay 24, 2016

Ask Donna

What actually matters in this document.

Text

BUREAU OF CONSUMER FINANCIAL PROTECTION

12 CFR Part 1040

[Docket No. CFPB-2016-0020]

RIN 3170-AA51

Arbitration Agreements

AGENCY:

Bureau of Consumer Financial Protection.

ACTION:

Proposed rule with request for public comment.

SUMMARY:

Pursuant to section 1028(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203), the Bureau of Consumer Financial Protection (Bureau) is proposing to establish 12 CFR part 1040, which would contain regulations governing two aspects of consumer finance dispute resolution. First, the proposed rule would prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action with respect to the covered consumer financial product or service. Second, the proposal would require a covered provider that is involved in an arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the Bureau. The Bureau proposes that the rulemaking would apply to certain consumer financial products and services. The Bureau is also proposing to adopt official interpretations to the proposed regulation.

DATES:

Comments must be received on or before August 22, 2016.

ADDRESSES:

You may submit comments, identified by Docket No. CFPB-2016-0020 or RIN 3170-AA51, by any of the following methods:

•

Email:

FederalRegisterComments@cfpb.gov

. Include Docket No. CFPB-2016-0020 or RIN 3170-AA51 in the subject line of the email.

•

Electronic:

http://www.regulations.gov

. Follow the instructions for submitting comments.

•

Mail:

Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1700 G Street NW., Washington, DC 20552.

•

Hand Delivery/Courier:

Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau, 1275 First Street NE., Washington, DC 20002.

Instructions:

All submissions should include the agency name and docket number or Regulatory Information Number (RIN) for this rulemaking. Because paper mail in the Washington, DC area and at the Bureau is subject to delay, commenters are encouraged to submit comments electronically. In general, all comments received will be posted without change to

http://www.regulations.gov

. In addition, comments will be available for public inspection and copying at 1275 First Street NE., Washington, DC 20002, on official business days between the hours of 10 a.m. and 5 p.m. eastern time. You can make an appointment to inspect the documents by telephoning (202) 435-7275.

All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or Social Security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.

FOR FURTHER INFORMATION CONTACT:

Owen Bonheimer, Benjamin Cady, Lawrence Lee, Nora Rigby, Counsels; Eric Goldberg, Senior Counsel, Office of Regulations, Consumer Financial Protection Bureau, at 202-435-7700.

SUPPLEMENTARY INFORMATION:

I. Summary of the Proposed Rule

The Bureau of Consumer Financial Protection (Bureau) is proposing regulations governing agreements that provide for the arbitration of any future disputes between consumers and providers of certain consumer financial products and services. Congress directed the Bureau to study these pre-dispute arbitration agreements in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank or Dodd-Frank Act).

In 2015, the Bureau published and delivered to Congress a study of arbitration.

In the Dodd-Frank Act, Congress also authorized the Bureau, after completing the Study (hereinafter Study), to issue regulations restricting or prohibiting the use of arbitration agreements if the Bureau found that such rules would be in the public interest and for the protection of consumers.

Congress also required that the findings in any such rule be consistent with the Bureau's Study.

Public Law 111-203, 124 Stat. 1376 (2010), section 1028(a).

Bureau of Consumer Fin. Prot.,

Arbitration Study: Report to Congress, Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a)

(2015),

available at http://files.consumerfinance.gov/f/201503_cfpb_arbitration-study-report-to-congress-2015.pdf

. Specific portions of the Study are cited in this proposal where relevant, and the entire Study will be included in the docket for this rulemaking at

www.regulations.gov

See

Bureau of Consumer Fin. Prot., Request for Information Regarding Scope, Methods and Data Sources for Conducting Study of Pre-Dispute Arbitration Agreements, 77 FR 25148 (Apr. 27, 2012) (hereinafter Arbitration Study RFI). Before releasing the Study, the Bureau released preliminary results in late 2013. Bureau of Consumer Fin. Prot.,

Arbitration Study Preliminary Results

(Dec. 12, 2013) (hereinafter Preliminary Results),

available at

http://files.consumerfinance.gov/f/201312_cfpb_arbitration-study-preliminary-results.pdf

Dodd-Frank section 1028(b).

Id.

In accordance with this authority, the Bureau is now issuing this proposal and request for public comment. The proposed rule would impose two sets of limitations on the use of pre-dispute arbitration agreements by covered providers of consumer financial products and services. First, it would prohibit providers from using a pre-dispute arbitration agreement to block consumer class actions in court and would require providers to insert language into their arbitration agreements reflecting this limitation. This proposal is based on the Bureau's preliminary findings—which are consistent with the Study—that pre-dispute arbitration agreements are being widely used to prevent consumers from seeking relief from legal violations on a class basis, and that consumers rarely file individual lawsuits or arbitration cases to obtain such relief.

Second, the proposal would require providers that use pre-dispute arbitration agreements to submit certain records relating to arbitral proceedings to the Bureau. The Bureau intends to use the information it collects to continue monitoring arbitral proceedings to determine whether there are developments that raise consumer protection concerns that may warrant further Bureau action. The Bureau intends to publish these materials on its Web site in some form, with appropriate redactions or aggregation as warranted, to provide greater transparency into the arbitration of consumer disputes.

The proposal would apply to providers of certain consumer financial products and services in the core consumer financial markets of lending money, storing money, and moving or exchanging money, including most providers that are engaged in:

• Extending or regularly participating in decisions regarding consumer credit under Regulation B implementing the Equal Credit Opportunity Act (ECOA), engaging primarily in the business of providing referrals or selecting creditors for consumers to obtain such credit, and the acquiring, purchasing, selling, or servicing of such credit;

• extending or brokering of automobile leases as defined in Bureau regulation;

• providing services to assist with debt management or debt settlement, modify the terms of any extension of consumer credit, or avoid foreclosure;

• providing directly to a consumer a consumer report as defined in the Fair Credit Reporting Act, a credit score, or other information specific to a consumer from a consumer report, except for adverse action notices provided by an employer;

• providing accounts under the Truth in Savings Act and accounts and remittance transfers subject to the Electronic Fund Transfer Act;

• transmitting or exchanging funds (except when integral to another product or service not covered by the proposed rule), certain other payment processing services, and check cashing, check collection, or check guaranty services consistent with the Dodd-Frank Act; and

• collecting debt arising from any of the above products or services by a provider of any of the above products or services, their affiliates, an acquirer or purchaser of consumer credit, or a person acting on behalf of any of these persons, or by a debt collector as defined by the Fair Debt Collection Practices Act.

Consistent with the Dodd-Frank Act, the proposed rule would apply only to agreements entered into after the end of the 180-day period beginning on the regulation's effective date.

The Bureau is proposing an effective date of 30 days after a final rule is published in the

Federal Register

. To facilitate implementation and ensure compliance, the Bureau is proposing language that providers would be required to insert into such arbitration agreements to explain the effect of the rule. The proposal would also permit providers of general-purpose reloadable prepaid cards to continue selling packages that contain non-compliant arbitration agreements, if they give consumers a compliant agreement as soon as consumers register their cards and the providers comply with the proposed rule's requirement not to use an arbitration agreement to block a class action.

Dodd-Frank section 1028(d).

II. Background

Arbitration is a dispute resolution process in which the parties choose one or more neutral third parties to make a final and binding decision resolving the dispute.

Parties may include language in their contracts, before any dispute has arisen, committing to resolve future disputes between them in arbitration rather than in court or allowing either party the option to seek resolution of a future dispute in arbitration. Such pre-dispute arbitration agreements—which this proposal generally refers to as “arbitration agreements”

—have a long history, primarily in commercial contracts, where companies typically bargain to create agreements tailored to their needs.

In 1925, Congress passed what is now known as the Federal Arbitration Act (FAA) to require that courts enforce agreements to arbitrate, including those entered into both before and after a dispute has arisen.

Arbitration,

Black's Law Dictionary (10th ed. 2014).

Proposed § 1040.2(d) would define the phrase “pre-dispute arbitration agreement.” When referring to the definition, in proposed § 1040.2(d), this proposal will use the full term or otherwise clarify the intended usage.

See infra

Part II.C.

9 U.S.C. 1

et seq.

In the last few decades, companies have begun inserting arbitration agreements in a wide variety of standard-form contracts, such as in contracts between companies and consumers, employees, and investors. The use of arbitration agreements in such contracts has become a contentious legal and policy issue due to concerns about whether the effects of arbitration agreements are salient to consumers, whether arbitration has proved to be a fair and efficient dispute resolution mechanism, and whether arbitration agreements effectively discourage the filing or resolution of certain claims in court or in arbitration.

In light of these concerns, Congress has taken steps to restrict the use of arbitration agreements in connection with certain consumer financial products and services and other consumer and investor relationships. Most recently, in the 2010 Dodd-Frank Act, Congress prohibited the use of arbitration agreements in connection with mortgage loans,

authorized the Securities and Exchange Commission (SEC) to regulate arbitration agreements in contracts between consumers and securities broker-dealers or investment advisers,

and prohibited the use of arbitration agreements in connection with certain whistleblower proceedings.

Dodd-Frank section 1414(e) (codified as 15 U.S.C. 1639c(e)).

Dodd-Frank sections 921(a) and 921(b) (codified as 15 U.S.C. 78o(o) and 15 U.S.C. 80b-5(f)).

Dodd-Frank section 922(b) (codified as 18 U.S.C. 1514A(e)).

In addition, and of particular relevance here, Congress directed the Bureau to study the use of arbitration agreements in connection with other, non-mortgage consumer financial products and services and authorized the Bureau to prohibit or restrict the use of such agreements if it finds that such action is in the public interest and for the protection of consumers.

Congress also required that the findings in any such rule be consistent with the Study.

The Bureau solicited input on the appropriate scope, methods, and data sources for the Study in 2012

and released results of its three-year study in March 2015.

Part III of this proposed rule summarizes the Bureau's process for completing the Study and its results. To place these results in greater context, this Part provides a brief overview of: (1) Consumers' rights under Federal and State laws governing consumer financial products and services; (2) court mechanisms for seeking relief where those rights have been violated, and, in particular, the role of the class action device in protecting consumers; and (3) the evolution of arbitration agreements and their increasing use in markets for consumer financial products and services.

Dodd-Frank section 1028(b).

Id.

Arbitration Study RFI,

supra

note 2.

Study,

supra

note 2. The Bureau also delivered the Study to Congress.

See also

Letter from Catherine Galicia, Ass't Dir. of Legis. Aff., Bureau of Consumer Fin. Prot. to Hon. Jeb Hensarling, Chairman, Comm. on Fin. Serv. (Mar. 10, 2015) (on file with the Bureau).

A. Consumer Rights Under Federal and State Laws Governing Consumer Financial Products and Services

Companies often provide consumer financial products and services under the terms of a written contract. In addition to being governed by such contracts and the relevant State's contract law, the relationship between a consumer and a financial service provider is typically governed by consumer protection laws at the State level, Federal level, or both, as well as by other State laws of general applicability (such as tort law). Collectively, these laws create legal rights for consumers and impose duties on the providers of financial products and services that are subject to those laws.

Early Consumer Protection in the Law

Prior to the twentieth century, the law generally embraced the notion of

caveat emptor

or “buyer beware.”

State

common law afforded some minimal consumer protections against fraud, usury, or breach of contract, but these common law protections were limited in scope. In the first half of the twentieth century, Congress began passing legislation intended to protect consumers, such as the Wheeler-Lea Act of 1938.

The Wheeler-Lea Act amended the Federal Trade Commission Act of 1914 (FTC Act) to provide the FTC with the authority to pursue unfair or deceptive acts and practices.

These early Federal laws did not provide for private rights of action, meaning that they could only be enforced by the government.

Caveat emptor

assumed that buyer and seller conducted business face to face on roughly equal

terms (much as English common law assumed that civil actions generally involved roughly equal parties in direct contact with each other). J.R. Franke & D.A. Ballam,

New Applications of Consumer Protection Law: Judicial Activism or Legislative Directive?,

32 Santa Clara L. Rev. 347, 351-55 (1992).

Wheeler-Lea Act of 1938, Public Law 75-447, 52 Stat. 111 (1938).

See

FTC Act section 5. Prior to the Wheeler-Lea Act, the FTC had the authority to reach “unfair methods of competition in commerce” but only if they had an anticompetitive effect.

See FTC

Raladam Co.,

283 U.S. 643, 649 (1931).

Modern Era of Federal Consumer Financial Protections

In the late 1960s, Congress began passing consumer protection laws focused on financial products, beginning with the Consumer Credit Protection Act (CCPA) in 1968.

The CCPA included the Truth in Lending Act (TILA), which imposed disclosure and other requirements on creditors.

In contrast to earlier consumer protection laws such as the Wheeler-Lea Act, TILA permits private enforcement by providing consumers with a private right of action, authorizing consumers to pursue claims for actual damages and statutory damages and allowing consumers who prevail in litigation to recover their attorney's fees and costs.

Public Law 90-321, 82 Stat. 146 (1968).

Id.

at Title I.

15 U.S.C. 1640(a).

Congress followed the enactment of TILA with several other consumer financial protection laws, many of which provided private rights of action for at least some statutory violations. For example, in 1970, Congress passed the Fair Credit Reporting Act (FCRA), which promotes the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies, as well as providing consumers access to their own information.

In 1976, Congress passed ECOA to prohibit creditors from discriminating against applicants with respect to credit transactions.

In 1977, Congress passed the Fair Debt Collection Practices Act (FDCPA) to promote the fair treatment of consumers who are subject to debt collection activities.

Public Law 91-508, 84 Stat. 1114-2 (1970).

Public Law 94-239, 90 Stat. 251 (1976).

Public Law 95-109, 91 Stat. 874 (1977). Other such Federal consumer protection laws include those enumerated in the Dodd-Frank Act and made subject to the Bureau's rulemaking, supervision, and enforcement authority: Alternative Mortgage Transaction Parity Act of 1982, 12 U.S.C. 3801; Consumer Leasing Act of 1976, 15 U.S.C. 1667; Electronic Fund Transfer Act (EFTA), 15 U.S.C. 1693 (except with respect to § 920 of that Act); Fair Credit Billing Act, 15 U.S.C. 1666; Home Mortgage Disclosure Act of 1975, 12 U.S.C. 2801; Home Owners Protection Act of 1998, 12 U.S.C. 4901; Federal Deposit Insurance Act, 12 U.S.C. 1831t (b)-(f); Gramm-Leach-Bliley Act 15 U.S.C. 6802-09 (except with respect to section 505 as it applies to section 501(b) of that Act); Home Ownership and Equity Protection Act of 1994 (HOEPA), 15 U.S.C. 1601; Interstate Land Sales Full Disclosure Act, 15 U.S.C. 1701; Real Estate Settlement Procedures Act of 1974 (RESPA), 12 U.S.C. 2601; S.A.F.E. Mortgage Licensing Act of 2008, 12 U.S.C. 5101; Truth in Savings Act (TISA), 12 U.S.C. 4301, and section 626 of the Omnibus Appropriations Act of 2009, 15 U.S.C. 1638. Federal consumer protection laws also include the Bureau's authority to take action to prevent a covered person or service provider from committing or engaging in an unfair, deceptive, and abusive acts or practices, Dodd-Frank section 1031, and its disclosure authority, Dodd-Frank section 1032.

Also in the 1960s, States began passing their own consumer protection statutes modeled on the FTC Act to prohibit unfair and deceptive practices. Unlike the Federal FTC Act, however, these State statutes typically provide for private enforcement.

The FTC encouraged the adoption of consumer protection statutes at the State level and worked directly with the Council of State Governments to draft the Uniform Trade Practices Act and Consumer Protection Law, which served as a model for many State consumer protection statutes.

Currently, forty-nine of the fifty States and the District of Columbia have State consumer protection statutes modeled on the FTC Act that allow for private rights of action.

Victor E. Schwartz & Cary Silverman,

Common-Sense Construction of Consumer Protection Acts,

54 U. Kan. L. Rev. 1, 15-16 (2005).

Id.

at 16. Every State that adopted a version of FTC Act prohibits deception; some prohibit unfair practices as well.

See

Carolyn L. Carter,

Consumer Protection in the States,

Nat'l Consumer L. Ctr. (2009) at 5,

available at

https://www.nclc.org/images/pdf/udap/report_50_states.pdf

Class Actions Pursuant to Federal Consumer Protection Laws

In 1966, shortly before Congress first began passing consumer financial protection statutes, the Federal Rules of Civil Procedure (Federal Rules or FRCP) were amended to make class actions substantially more available to litigants, including consumers. The class action procedure in the Federal Rules, as discussed in detail in Part II.B below, allows a representative individual to group his or her claims together with those of other, absent individuals in one lawsuit under certain circumstances. Because TILA and the other Federal consumer protection statutes discussed above permitted private rights of action, those private rights of action were enforceable through a class action, unless the statute expressly prohibited it.

See, e.g., Wilcox

Commerce Bank of Kansas City,

474 F.2d 336, 343-44 (10th Cir. 1973).

Congress calibrated enforcement through private class actions in several of the consumer protection statutes by specifically referencing class actions and adopting statutory damage schemes that are pegged to a percentage of the defendants' net worth.

For example, when consumers initially sought to bring TILA class actions, a number of courts applying Federal Rule 23 denied motions to certify the class because of the prospect of extremely large damages resulting from the aggregation of a large number of claims for statutory damages.

Congress addressed this by amending TILA in 1974 to cap class action damages in such cases to the lesser of 1 percent of the defendant's assets or $100,000.

Congress has twice increased the cap on class action damages in TILA: To $500,000 in 1976 and $1,000,000 in 2010.

Many other statutes similarly cap damages in class actions.

Further, the legislative history of other statutes indicates a particular intent to permit class actions given the

potential for a small recovery in many consumer finance cases for individual damages.

Similarly, many States permit class action litigation to vindicate violations of their versions of the FTC Act.

A minority of States expressly prohibit class actions to enforce their FTC Acts.

A minority of Federal statutes provide private rights of action but do not cap damages in class action cases. For example, the Telephone Consumer Protection Act (47 U.S.C. 227(b)(3)), the FCRA (15 U.S.C. 1681n, 1681o), and the Credit Repair Organizations Act (15 U.S.C. 1679g) do not cap damages in class action cases.

See, e.g., Ratner

Chem. Bank N.Y. Trust Co.,

54 FRD. 412, 416 (S.D.N.Y. 1972).

See

Public Law 93-495, 88 Stat. 1518, section 408(a).

Truth in Lending Act Amendments, Public Law 94-240, 90 Stat. 260 (1976); Dodd-Frank section 1416(a)(2).

For example, ECOA provides for the full recovery of actual damages on a class basis and caps punitive damages to the lesser of $500,000 or 1 percent of a creditor's net worth; RESPA limits total class action damages (including actual or statutory damages) to the lesser of $1,000,000 or 1 percent of the net worth of a mortgage servicer; the FDCPA limits class action recoveries to the lesser of $500,000 or 1 percent of the net worth of the debt collector; and EFTA provides for a cap on statutory damages in class actions to the lesser of $500,000 or 1 percent of a defendant's net worth and lists factors to consider in determining the proper amount of a class award.

See

15 U.S.C. 1691e(b) (ECOA), 12 U.S.C. 2605(f)(2) (RESPA), 15 U.S.C. 1692k(a)(2)(B) (FDCPA), and 15 U.S.C. 1693m(a)(2)(B) (EFTA).

See, e.g.,

Electronic Fund Transfer Act, H. Rept. No. 95-1315, at 15 (1978). The Report stated: “Without a class-action suit an institution could violate the title with respect to thousands of consumers without their knowledge, if its financial impact was small enough or hard to discover. Class action suits for damages are an essential part of enforcement of the bill because, all too often, although many consumers have been harmed, the actual damages in contrast to the legal costs to individuals are not enough to encourage a consumer to sue. Suits might only be brought for violations resulting in large individual losses while many small individual losses could quickly add up to thousands of dollars.”

The laws of at least 14 States expressly permit class action lawsuits.

See, e.g.,

Cal. Bus. & Professions Code 17203 (2016); Haw. Rev. Stat. Ann. sec. 480-13.3 (2015); Idaho Code Ann. sec. 48-608(1) (2015); Ind. Code Ann. sec. 24-5-0.5-4(b) (2015); Kan. Stat. Ann. sec. 50-634(c) and (d) (2012); Mass. Gen. Laws ch. 93A, sec. 9(2) (2016); Mich. Comp. Laws sec. 445.911(3) (2015); Mo. Rev. Stat. sec. 407.025(2) and (3) (2015); N.H. Rev. Stat. sec. 358-A:10-a (2015); N.M. Stat. sec. 57-12-10(E) (2015); Ohio Rev. Code sec. 1345.09(B) (2016); R.I. Gen. Laws sec. 6-13.1-5.2(b) (2015); Utah Code sec. 13-11-19 and 20 (2015); Wyo. Stat. sec. 40-12-108(b) (2015).

See, e.g.,

Ala. Code sec. 8-19-10(f) (2002); Ga. Code Ann. sec. 10-1-399 (2015); La. Rev. Stat. Ann. sec. 51:1409(A) (2006); Mont. Code Ann. sec. 30-14-133(1) (2003); S.C. Code Ann. sec. 37-5-202(1) (1999).

B. History and Purpose of the Class Action Procedure

The default rule in United States courts, inherited from England, is that only those who appear as parties to a given case are bound by its outcome.

As early as the medieval period, however, English courts recognized that litigating many individual cases regarding the same issue was inefficient for all parties and thus began to permit a single person in a single case to represent a group of people with common interests.

English courts later developed a procedure called the “bill of peace” to adjudicate disputes involving common questions and multiple parties in a single action. The process allowed for judgments binding all group members—whether or not they were participants in the suit—and contained most of the basic elements of what is now called class action litigation.

Ortiz

Fibreboard Corp.,

527 U.S. 815, 832-33 (1999).

For instance, in early English cases, a local priest might represent his parish, or a guild might be represented by its formal leadership. Samuel Issacharoff,

Assembling Class Actions,

90 Wash U. L. Rev. 699, 704 (2014) (citing Stephen C. Yeazell, From Medieval Group Litigation to the Modern Class Action 40 (1987)).

Wright, Miller & Kane, 7A Fed. Prac. & Proc. Civ. 1751 (3d. ed.).

The bill of peace was recognized in early United States case law and ultimately adopted by several State courts and the Federal courts.

Nevertheless, the use and impact of that procedure remained relatively limited through the nineteenth and into the twentieth centuries. In 1938, the Federal Rules were adopted to govern civil litigation in Federal court, and Rule 23 established a procedure for class actions.

That procedure's ability to bind absent class members was never clear, however.

Id.

Federal Equity Rule 48, in effect from 1842 to 1912, officially recognized representative suits where parties were too numerous to be conveniently brought before the court, but did not bind absent members to the judgment.

Id.

In 1912, Federal Equity Rule 38 replaced Rule 48 and allowed absent members to be bound by a final judgment.

Id.

See

Fed. R. Civ. P. 23 (1938).

See American Pipe & Constr. Co.

Utah,

414 U.S. 538, 545-46 (1974) (“The Rule [prior to its amendment] . . . contained no mechanism for determining at any point in advance of final judgment which of those potential members of the class claimed in the complaint were actual members and would be bound by the judgment.”).

That changed in 1966, when Rule 23 was amended to create the class action mechanism that largely persists in the same form to this day.

Rule 23 was amended at least in part to promote efficiency in the courts and to provide for compensation of individuals when many are harmed by the same conduct.

The 1966 revisions to Rule 23 prompted similar changes in most States. As the Supreme Court has since explained, class actions promote efficiency in that “the . . . device saves the resources of both the courts and the parties by permitting an issue potentially affecting every [class member] to be litigated in an economical fashion under Rule 23.”

As to small harms, class actions provide a mechanism for compensating individuals where “the amounts at stake for individuals may be so small that separate suits would be impracticable.”

Class actions have been brought not only by individuals, but also by companies, including financial institutions.

See, e.g.,

Robert H. Klonoff,

The Decline of Class Actions,

90 Wash. U. L. Rev. 729, 746-47 (2013) (“The Rule 23(a) and (b) criteria, by their terms, have not changed in any significant way since 1966, but some courts have become increasingly skeptical in reviewing whether a particular case satisfies those requirements”).

See American Pipe,

414 U.S. at 553 (“A contrary rule allowing participation only by those potential members of the class who had earlier filed motions to intervene in the suit would deprive Rule 23 class actions of the efficiency and economy of litigation which is a principal purpose of the procedure.”).

Califano

Yamasaki,

442 U.S. 682, 701 (1979).

Amchem Prod., Inc.

Windsor,

521 U.S. 591, 616 (1997),

citing

Fed. R. Civ. P. 23 advisory committee's note, 28 U.S.C. app. at 698 (stating that a class action may be justified under Rule 23 where “the class may have a high degree of cohesion and prosecution of the action through representatives would be quite unobjectionable, or the amounts at stake for individuals may be so small that separate suits would be impracticable”).

See also

Newberg on Class Actions § 7:41; Committee Notes on Rules, 1998 Amendment (“This permissive interlocutory appeal provision is adopted under the power conferred by 28 U.S.C. 1292(e). Appeal from an order granting or denying class certification is permitted in the sole discretion of the court of appeals. No other type of Rule 23 order is covered by this provision.”).

See

28 U.S.C. app. at 163 (2014).

Fed. R. Civ. P. 23(c)(2)(B).

See also

28 U.S.C. app. at 168 (2014) (“Rule 23(c)(2)(B) is revised to require that the notice of class certification define the certified class in terms identical to the terms used in (c)(1)(B).”).

See, e.g.,

Rule 23 Subcomm. Rept.,

Adv. Comm. on Civil Rules Agenda Book for April 9-10, 2015 at 243-97,

available at

http://www.uscourts.gov/rules-policies/archives/agenda-books/advisory-committee-rules-civil-procedure-april-2015

Federal courts have also shaped class action practice through their interpretations of Rule 23. In the last five years, the Supreme Court has decided several major cases refining class action procedure. In

Wal-Mart Stores, Inc.

Dukes,

the Court interpreted the commonality requirement of Rule 23(a)(2) to require that the common question that is the basis for certification be central to the disposition of the case.

Comcast Corp.

Behrend,

the Court reaffirmed that district courts must undertake a “rigorous analysis” of whether a putative class satisfies the predominance requirements in Rule 23(b)(3) and reinforced that individual damages issues may foreclose class certification altogether.

Campbell-Ewald Co.

Gomez,

decided this term, the Court held that a defendant cannot moot a class action by offering complete relief to an individual plaintiff before class certification (unless the individual plaintiff agrees to accept that relief).

Tyson Foods, Inc.

Bouaphakeo,

the Court held that statistical techniques presuming that all class members are identical to the average observed in a sample can be used to establish

classwide liability where each class member could have relied on that sample to establish liability had each brought an individual action.

Finally, in a case not yet decided as of the date of this proposal with implications for certain types of class actions,

Spokeo, Inc.

Robins,

the Court is considering whether a plaintiff has standing to sue if they allege a violation of a Federal statute that allows for statutory damages—in this case, FCRA—and claim only those damages without making a claim for actual damages.

564 U.S. 338, 131 S. Ct. 2541 (2011);

See also

Public Citizen,

The Arbitration Trap: How Credit Card Companies Ensnare Consumers

(2007),

available at

http://www.citizen.org/publications/publicationredirect.cfm?ID=7545

Legal Challenges to Arbitration Agreements

The increase in the prevalence of arbitration agreements coincided with various legal challenges to their use in consumer contracts. One set of challenges focused on the use of arbitration agreements in connection with debt collection disputes. In the late 2000s, consumer groups began to criticize the fairness of debt collection arbitration proceedings administered by the NAF, the most widely used arbitration administrator for debt collection.

In 2008, the San Francisco City Attorney's office filed a civil action against NAF alleging that NAF was biased in favor of debt collectors.

In 2009, the Minnesota Attorney General sued NAF, alleging an institutional conflict of interest because a group of investors with a 40 percent ownership stake in an affiliate of NAF also had a majority ownership stake in a debt collection firm that brought a number of cases before NAF.

A few days after the filing of the lawsuit, NAF reached a settlement with the Minnesota Attorney General pursuant to which it agreed to stop administering consumer arbitrations completely, although NAF did not admit liability.

Further, a series of class actions filed against NAF were consolidated in a multidistrict litigation and NAF settled those in 2011 by agreeing to suspend $1 billion in pending debt collection arbitrations.

The American Arbitration Association (AAA) likewise announced a moratorium on administering company-filed debt collection arbitrations, articulating significant concerns about due process and fairness to consumers subject to such arbitrations.

See

Mollencamp,

supra

note 91. In addition to cases relating to debt collection arbitrations, NAF was later added as a defendant to the

Ross

Bank of America

case, a putative class action pertaining to non-disclosure of foreign currency conversion fees; NAF was alleged to have facilitated an antitrust conspiracy among credit card companies to adopt arbitration agreements. NAF settled those allegations.

See

Order Preliminarily Approving Class Action Settlement as to Defendant National Arbitration Forum Inc.,

In re Currency Conversion Fee Antitrust Litig.,

MDL 1409 (S.D.N.Y. Dec. 13, 2011).

California

National Arbitration Forum, Inc.,

No. 473-569 (S.F. Sup. Ct. Mar. 2009).

See

Complaint at 2,

State of Minnesota

National Arbitration Forum, Inc.

No. 27-cv-0918550 (4th Jud. Dist. Minn. July 14, 2009),

available at

https://www.nclc.org/images/pdf/unreported/naf_complaint.pdf

Press Release, State of Minnesota, Office of the Attorney General,

National Arbitration Forum Barred from Credit Card and Consumer Arbitrations Under Agreement with Attorney General Swanson

(July 19, 2009),

available at

http://pubcit.typepad.com/files/nafconsentdecree.pdf

. NAF settled the City of San Francisco's claims in 2011 by agreeing to cease administering consumer arbitrations in California in perpetuity and to pay a $1 million penalty. News Release, City Attorney Dennis Herrera,

Herrera Secures $5 Million Settlement, Consumer Safeguards Against BofA Credit Card Subsidiary

(Aug. 22, 2011).

Mem. and Order,

In re National Arbitration Forum Trade Practices Litigation,

No. 10-md-02122 (D. Minn. Aug. 8, 2011).

See

AAA Press Release,

The American Arbitration Association Calls for Reform of Debt Collection Arbitration

(July 23, 2009),

available at

https://www.nclc.org/images/pdf/arbitration/testimonysept09-exhibit3.pdf

See also

American Arbitration Association,

Consumer Debt Collection Due Process Protocol Statement of Principles

(2010),

available at

https://www.adr.org/aaa/ShowProperty?nodeId=%2FUCM%2FADRSTG_003865

. JAMS has reported to the Bureau that it only handles a small number of debt collection claims and often those arbitrations are initiated by consumers.

A second group of challenges asserted that the invocation of arbitration agreements to block class actions was unlawful. Because the FAA permits challenges to the validity of arbitration agreements on grounds that exist at law or in equity for the revocation of any contract,

challengers argued that provisions prohibiting arbitration from proceeding on a class basis—as well as other features of particular arbitration agreements—were unconscionable under State law or otherwise unenforceable.

Initially, these challenges yielded conflicting results. Some courts held that class arbitration waivers were not unconscionable.

100

Other courts held that such waivers were unenforceable on unconscionability grounds.

101

Some of

these decisions also held that the FAA did not preempt application of a state's unconscionability doctrine.

102

9 U.S.C. 2 (providing that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”).

See, e.g.,

Opening Br. on the Merits,

Discover Bank

Superior Court,

No. S113725, 2003 WL 26111906, at 5 (Cal. 2005) (“[A] ban on class actions in an adhesive consumer contract such as the one at issue here is unconscionable because it is one-sided and effectively non-mutual—that is, it benefits only the corporate defendant, and could never operate to the benefit of the consumer.”)

100

See, e.g., Strand

U.S. Bank N.A.,

693 NW.2d 918 (N.D. 2005);

Edelist

MBNA America Bank,

790 A.2d 1249 (Sup. Ct. of Del., New Castle Cty. 2001).

101

See, e.g., Brewer

Missouri Title Loans, Inc.,

323 SW.3d 18 (Mo. 2010) (en banc);

Feeney

Dell, Inc.,

908 NE.2d 753 (Mass. 2009);

Fiser

Dell Computer Corp.,

188 P.3d 1215 (N.M. 2008);

Tillman

Commercial Credit Loans, Inc.,

655 SE.2d 362 (N.C. 2008);

Dale

Comcast Corp.,

498 F.3d 1216 (11th Cir. 2007) (holding that class action ban in arbitration agreement substantively unconscionable under Georgia law);

Scott

Cingular Wireless,

161 P.3d 1000 (Wash. 2007) (en banc);

Kinkel

Cingular Wireless LLC,

857 NE.2d 250 (Ill. 2006);

Muhammad

Cnty. Bank of

Rehoboth Beach, Del.,

912 A.2d 88 (N.J. 2006);

Discover Bank

Superior Court,

113 P.3d 1100 (Cal. 2005).

102

See, e.g., Feeney,

908 NE.2d at 767-69;

Scott,

161 P.3d at 1008-09;

Discover Bank,

113 P.3d at 1110-17.

Before 2011, courts were divided on whether arbitration agreements that bar class proceedings were unenforceable because they violated some states' laws. Then, in 2011, the Supreme Court held in

AT&T Mobility

Concepcion

that the FAA preempted application of California's unconscionability doctrine to the extent it would have precluded enforcement of a consumer arbitration agreement with a provision prohibiting the filing of arbitration on a class basis. The Court concluded that any State law—even one that serves as a general contract law defense—that “[r]equir[es] the availability of classwide arbitration interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA.”

103

The Court reasoned that class arbitration eliminates the principal advantage of arbitration—its informality—and increases risks to defendants (due to the high stakes of mass resolution combined with the absence of multilayered review).

104

As a result of the Court's holding, parties to litigation could no longer prevent the use of an arbitration agreement to block a class action in court on the ground that a prohibition on class arbitration in the agreement was unconscionable under the relevant State law.

105

The Court further held, in a 2013 decision, that a court may not use the “effective vindication” doctrine—under which a court may invalidate an arbitration agreement that operates to waive a party's right to pursue statutory remedies—to invalidate a class arbitration waiver on the grounds that the plaintiff's cost of individually arbitrating the claim exceeds the potential recovery.

106

103

AT&T Mobility LLC

Concepcion,

563 U.S. 333, 344 (2011).

104

Id.

at 348-51.

105

See

Robert Buchanan Jr.,

The U.S. Supreme Court's Landmark Decision in AT&T Mobility

Concepcion: One Year Later,

Bloomberg Law, May 8, 2012,

available at

http://www.bna.com/att-v-concepcion-one-year-later/

(noting that 45 out of 61 cases involving a class waiver in an arbitration agreement were sent to arbitration). The Court did not preempt all State law contract defenses under all circumstances; rather, these doctrines remain available provided that they are not applied in a manner that disfavors arbitration.

106

American Express Co.

Italian Colors Restaurant,

133 S. Ct. 2304, 2309 (2013).

Regulatory and Legislative Activity

As arbitration agreements in consumer contracts became more common, Federal regulators, Congress, and State legislatures began to take notice of their impact on the ability of consumers to resolve disputes. One of the first entities to regulate arbitration agreements was the National Association of Securities Dealers—now known as the Financial Industry Regulatory Authority (FINRA)—the self-regulating body for the securities industry that also administers arbitrations between member companies and their customers.

107

Under FINRA's Code of Arbitration for customer disputes, FINRA members have been prohibited since 1992 from enforcing an arbitration agreement against any member of a certified or putative class unless and until the class treatment is denied (or a certified class is decertified) or the class member has opted out of the class or class relief.

108

FINRA's code also requires this limitation to be set out in any member company's arbitration agreement. The SEC approved this rule in 1992.

109

In addition, since 1976, the regulations of the Commodities Futures Trading Commission (CFTC) implementing the Commodity Exchange Act have required that arbitration agreements in commodities contracts be voluntary.

110

In 2004, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac)—government-sponsored enterprises that purchase a large share of mortgages—ceased purchasing mortgages that contained arbitration agreements.

111

107

See

FINRA Arbitration and Mediation,

https://www.finra.org/arbitration-and-mediation

108

FINRA Code of Arbitration Procedure for Customer Disputes 12204(d). For individual disputes between brokers and customers, FINRA requires individual arbitration.

109

See

SE.C., Order Approving Proposed Rule Change Relating to the Exclusion of Class Actions From Arbitration Proceedings, 57 FR 52659-52661 (Nov. 4, 1992) (citing Securities and Exchange Act, section 19(b)(1) and Rule 19b-4). In a separate context, the SEC has opposed attempts by companies to include arbitration agreements in their securities filings in order to force shareholders to arbitrate disputes rather than litigate them in court.

See, e.g.,

Carl Schneider,

Arbitration Provisions in Corporate Governance Documents,

Harv. L. Sch. Forum on Corp. Governance and Fin. Reg. (Apr. 27, 2012),

available at

https://corpgov.law.harvard.edu/2012/04/27/arbitration-provisions-in-corporate-governance-documents/

(“According to published reports, the SEC advised Carlyle that it would not grant an acceleration order permitting the registration statement to become effective unless the arbitration provision was withdrawn.”). Carlyle subsequently withdrew its arbitration provision.

110

Arbitration or Other Dispute Settlement Procedures, 41 FR 42942, 42946 (Sept. 29, 1976); 17 CFR 166.5(b).

111

See

Kenneth Harney,

Fannie Follows Freddie in Banning Mandatory Arbitration,

Wash. Post., Oct. 9, 2004,

available at

http://www.washingtonpost.com/wp-dyn/articles/A18052-2004Oct8.html

Since 1975, FTC regulations implementing the Magnuson-Moss Warranty Act (MMWA) have barred the use, in consumer warranty agreements, of arbitration agreements that would result in binding decisions.

112

Some courts in the late 1990s disagreed with the FTC's interpretation, but the FTC promulgated a final rule in 2015 that “reaffirm[ed] its long-held view” that the MMWA “disfavors, and authorizes the Commission to prohibit, mandatory binding arbitration in warranties.”

113

In doing so, the FTC noted that the language of the MMWA presupposed that the kinds of informal dispute settlement mechanisms the FTC would permit would not foreclose the filing of a civil action in court.

114

112

10 CFR 703.5(j). The FTC's rules do permit warranties that require consumers to resort to an informal dispute resolution mechanism before proceeding in a court, but decisions from such informal proceedings are not binding and may be challenged in court. (By contrast, most arbitration awards are binding and may only be challenged on very limited grounds as provided by the FAA.) The FTC's rulemaking was based on authority expressly delegated by Congress in its passage of the MMWA pertaining to informal dispute settlement procedures. 15 U.S.C. 2310(a)(2). Until 1999, courts upheld the validity of the rule.

See

80 FR 42719;

see also id.

at 42211.

117

See

U.S. Dep't of Education Press Release,

U.S. Department of Education Takes Further Steps to Protect Students from Predatory Higher Education Institutions

(Mar. 11, 2016),

available at

https://www.ed.gov/news/press-releases/us-department-education-takes-further-steps-protect-students-predatory-higher-education-institutions

Congress has also taken several steps to address the use of arbitration agreements in different contexts. In 2002, Congress amended Federal law to require that, whenever a motor vehicle franchise contract contains an arbitration agreement, arbitration may be used to resolve the dispute only if, after a dispute arises, all parties to the dispute consent in writing to the use of arbitration.

118

In 2006, Congress passed the Military Lending Act (MLA), which, among other things, prohibited the use of arbitration provisions in extensions of credit to active servicemembers, their spouses, and certain dependents.

119

As first implemented by Department of Defense (DoD) regulations in 2007, the MLA applied to “[c]losed-end credit with a term of 91 days or fewer in which the amount financed does not exceed $2,000.”

120

In July 2015, DoD promulgated a final rule that significantly expanded that definition of “consumer credit” to cover closed-end loans that exceeded $2,000 or had terms longer than 91 days as well as various forms of open-end credit, including credit cards.

121

In 2008, Congress amended federal agriculture law to require, among other things, that livestock or poultry contracts containing arbitration agreements disclose the right of the producer or grower to decline the arbitration agreement; the Department of Agriculture issued a final rule implementing the statute in 2011.

122

118

21st Century Department of Justice Appropriations Authorization Act, Public Law 107-273, section 11028(a)(2), 116 Stat. 1835 (2002), codified at 15 U.S.C. 1226(a)(2). The statute defines “motor vehicle franchise contract” as “a contract under which a motor vehicle manufacturer, importer, or distributor sells motor vehicles to any other person for resale to an ultimate purchaser and authorizes such other person to repair and service the manufacturer's motor vehicles.”

Id.

at section 11028(a)(1)(B), 116 Stat. 1835, codified at 15 U.S.C. 1226(a)(1)(B).

119

John Warner National Defense Authorization Act for Fiscal Year 2007, Public Law 109-364, 120 Stat. 2083 (2006).

120

Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 72 FR 50580 (Aug. 31, 2007) (codified at 32 CFR 232).

121

See

32 CFR 232.8(c). Creditors must comply with the requirements of the rule for transactions or accounts established or consummated on or after October 3, 2016, subject to certain exemptions. 32 CFR 232.13(a). The rule applies to credit card accounts under an open-end consumer credit plan only on October 3, 2017. 32 CFR 232.13(c)(2). Earlier, Congress passed an appropriations provision prohibiting Federal contractors and subcontractors receiving Department of Defense funds from requiring employees or independent contractors arbitrate certain kinds of employment claims.

See

Department of Defense Appropriations Act of 2010, Public Law 111-118, 123 Stat. 3454 (2010), section 8116.

122

Food, Conservation, and Energy Act of 2008, Public Law 110-234, section 11005, 122 Stat. 1356-58 (2008), codified at 7 U.S.C. 197c; Implementation of Regulations Required Under Title XI of the Food, Conservation and Energy Act of 2008; Suspension of Delivery of Birds, Additional Capital Investment Criteria, Breach of Contract, and Arbitration, 76 FR 76874, 76890 (Dec. 9, 2011).

As previously noted, Congress again addressed arbitration agreements in the 2010 Dodd-Frank Act. Dodd-Frank section 1414(a) prohibited the use of arbitration agreements in mortgage contracts, which the Bureau implemented in its Regulation Z.

123

Section 921 of the Act authorized the SEC to issue rules to prohibit or impose conditions or limitations on the use of arbitration agreements by investment advisers.

124

Section 922 of the Act invalidated the use of arbitration agreements in connection with certain whistleblower proceedings.

125

Finally, and as discussed in greater detail below, section 1028 of the Act required the Bureau to study the use of arbitration agreements in contracts for consumer financial products and services and authorized this rulemaking.

126

The authority of the Bureau and the SEC are similar under the Dodd-Frank Act except that the SEC does not have to complete a study before promulgating a rule. State legislatures have also taken steps to regulate the arbitration process. Several States, most notably California, require arbitration administrators to disclose basic data about consumer arbitrations that take place in the State.

127

States are constrained in their ability to regulate arbitration because the FAA preempts conflicting State law.

128

123

See

Dodd-Frank section 1414(a) (codified as 15 U.S.C. 1639c(e)(1)) (“No residential mortgage loan and no extension of credit under an open end consumer credit plan secured by the principal dwelling of the consumer may include terms which require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.”); 12 CFR 1026.36(h)(1).

124

Dodd-Frank section 921(b).

125

Dodd-Frank section 922(c)(2).

126

Dodd-Frank section 1028(a).

127

Cal. Civ. Proc. Code sec. 1281.96 (amended effective Jan. 1, 2015); DC Code secs. 16-4430; Md. Comm. L. Code, secs. 14-3901-05; 10 M.R.S.A. sec. 1394 (Maine).

128

See Doctor's Assocs., Inc.

Casarotto,

517 U.S. 681, 687 (1996) (“Courts may not, however, invalidate arbitration agreements under state laws applicable only to arbitration provisions.”);

Perry

Thomas,

482 U.S. 483, 492 n.9 (1987) (“[S]tate law, whether of legislative or judicial origin, is applicable

that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with this requirement of [FAA] sec. 2.”).

Arbitration Today

Today, the AAA is the primary administrator of consumer financial arbitrations.

129

The AAA's consumer financial arbitrations are governed by the AAA Consumer Arbitration Rules, which includes provisions that, among other things, limit filing and administrative costs for consumers.

130

The AAA also has adopted the AAA Consumer Due Process Protocol, which creates a floor of procedural and substantive protections and affirms that “[a]ll parties are entitled to a fundamentally-fair arbitration process.”

131

A second entity, JAMS, administers consumer financial arbitrations pursuant to the JAMS Streamlined Arbitration Rules & Procedures

132

and the JAMS Consumer Minimum Standards. These administrators' procedures for arbitration differ in several respects from the procedures found in court, as discussed in Section 4 of the Study and summarized below at Part III.D.

129

See infra

Part III.D.

130

AAA,

Consumer Arbitration Rules.

131

AAA,

Consumer Due Process Protocol Statement of Principles,

Principle 1. Other principles include that all parties are entitled to a neutral arbitrator and administrator (Principle 3), that all parties retain the right to pursue small claims (Principle 5), and that face-to-face arbitration should be conducted at a “reasonably convenient” location (Principle 6). The AAA explained that it adopted these principles because, in its view, “consumer contracts often do not involve arm's length negotiation of terms, and frequently consist of boilerplate language.” The AAA further explained that “there are legitimate concerns regarding the fairness of consumer conflict resolution mechanisms required by suppliers. This is particularly true in the realm of binding arbitration, where the courts are displaced by private adjudication systems.”

Id.

at 4.

132

JAMS,

Streamlined Arbitration Rules & Procedures

(effective July 1, 2014),

available at

http://www.jamsadr.com/rules-streamlined-arbitration/

. If a claim or counterclaim exceeds $250,000, the JAMS Comprehensive Arbitration Procedures, not the Streamlined Rules & Procedures, apply.

Id.

Rule 1(a).

Further, although virtually all arbitration agreements in the consumer financial context expressly preclude arbitration from proceeding on a class basis, the major arbitration administrators do provide procedures for administering class arbitrations and

have occasionally administered them in class arbitrations involving providers of consumer financial products and services.

133

These procedures, which are derived from class action litigation procedures used in court, are described in Section 4.8 of the Study. These class arbitration procedures will only be used by the AAA or JAMS if the arbitration administrator first determines that the arbitration agreement can be construed as permitting class arbitration. These class arbitration procedures are not widely used in consumer financial services disputes: Reviewing consumer financial arbitrations pertaining to six product types filed over a period of three years, the Study found only three.

134

Industry has criticized class arbitration on the ground that it lacks procedural safeguards. For example, class arbitration generally has limited judicial review of arbitrator decisions (for example, on a decision to certify a class or an award of substantial damages).

135

133

See

AAA Class Arbitration dockets,

available at

https://www.adr.org/aaa/faces/services/disputeresolutionservices/casedocket?_afrLoop=368852573510045&_afrWindowMode=0&_afrWindowId=null

134

Study,

supra

note 2, section 5, at 86-87. The review of class action filings in five of these markets also identified one of these two class arbitrations, as well as an additional class action arbitration filed with JAMS following the dismissal or stay of a class litigation.

Id.,

section 6, at 59.

135

In a recent amicus curiae filing, the U.S. Chamber of Commerce argued that “[c]lass arbitration is a worst-of-all-worlds Frankenstein's monster: It combines the enormous stakes, formality and expense of litigation that are inimical to bilateral arbitration with exceedingly limited judicial review of the arbitrators' decisions.” Br. of the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Pl.-Appellants at 9,

Marriott Ownership Resorts, Inc.

Sterman,

No. 15-10627 (11th Cir. Apr. 1, 2015).

III. The Arbitration Study

Section 1028(a) of the Dodd-Frank Act directed the Bureau to study and provide a report to Congress on “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.” Pursuant to section 1028(a), the Bureau conducted a study of the use of pre-dispute arbitration agreements in contracts for consumer financial products and services and, in March 2015, delivered to Congress its

Arbitration Study: Report to Congress, Pursuant to Dodd-Frank Wall Street Reform and Consumer Protection Act § 1028(a).

136

Study,

supra

note 2.

This Part describes the process the Bureau used to carry out the Study and summarizes the Study's results.

A. April 2012 Request for Information

At the outset of its work, on April 27, 2012, the Bureau published a Request for Information (RFI) in the

Federal Register

concerning the Study.

137

The RFI sought public comment on the appropriate scope, methods, and data sources for the Study. Specifically, the Bureau asked for input on how it should address three topics: (1) The prevalence of arbitration agreements in contracts for consumer financial products and services; (2) arbitration claims involving consumers and companies; and (3) other impacts of arbitration agreements on consumers and companies, such as impacts on the incidence of consumer claims against companies, prices of consumer financial products and services, and the development of legal precedent. The Bureau also requested comment on whether and how the Study should address additional topics. In response to the RFI, the Bureau received and reviewed 60 comment letters. The Bureau also met with numerous commenters and other stakeholders to obtain additional feedback on the RFI.

137

Arbitration Study RFI,

supra

note 2.

The feedback received through this process substantially affected the scope of the study the Bureau undertook. For example, several industry trade association commenters suggested that the Bureau study not only consumer financial arbitration but also consumer financial litigation in court. The Study incorporates an extensive analysis of consumer financial litigation—both individual litigation and class actions.

138

Commenters also advised the Bureau to compare the relationship between public enforcement actions and private class actions. The Study included extensive research into this subject, including an analysis of public enforcement actions filed over a period of five years by State and Federal regulators and the relationship, or lack of relationship of these cases to private class litigation.

139

Commenters also recommended that the Bureau study whether arbitration reduces companies' dispute resolution costs and the relationship between any such cost savings and the cost and availability of consumer financial products and services. To investigate this, the Study includes a “difference-in-differences” regression analysis using a representative random sample of the Bureau's Credit Card Database (CCDB), to look for price impacts associated with changes relating to arbitration agreements for credit cards, an analysis that had never before been conducted.

140

138

See generally

Study,

supra

note 2, sections 6 and 8.

139

Id.,

section 9.

140

Id.,

section 10 at 7-14.

In some cases, commenters to the RFI encouraged the Bureau to study a topic, but the Bureau did not do so because certain effects did not appear measurable. For example, some commenters suggested that the Bureau study the effect of arbitration agreements on the development, interpretation, and application of the rule of law. The Bureau did not identify a robust data set that would allow empirical analysis of this phenomenon. Nonetheless, legal scholars have subsequently attempted to quantify this effect in relation to consumer law.

141

See

Myriam Gilles,

The End of Doctrine: Private Arbitration, Public Law and the Anti-Lawsuit Movement,

(Benjamin N. Cardozo Sch. of L. Faculty Research Paper No. 436, 2014),

available at

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2488575

(analyzing cases under “counterfactual scenarios” as to “what doctrinal developments in antitrust and consumer law . . . would not have occurred over the past decade if arbitration clauses had been deployed to the full extent now authorized by the Supreme Court”).

B. December 2013 Preliminary Report

In December 2013, the Bureau issued a 168-page report summarizing its preliminary results on a number of topics (Preliminary Results).

142

One purpose of releasing the Preliminary Results was to solicit additional input from the public about the Bureau's work on the Study to date. In the Preliminary Results, the Bureau also included a section that set out a detailed roadmap of the Bureau's plans for future work, including the Bureau's plans to address topics that had been suggested in response to the RFI.

143

142

Preliminary Results,

supra

note 2.

143

Id. at

129-31.

In February 2014, the Bureau invited stakeholders for in-person discussions with staff regarding the Preliminary Results, as well as the Bureau's future work plan. Several external stakeholders, including industry associations and consumer groups, took that opportunity and provided additional input regarding the Study.

C. Comments on Survey Design Pursuant to the Paperwork Reduction Act

In the Preliminary Results, the Bureau indicated that it planned to conduct a survey of consumers. The purpose of the survey was to assess consumer awareness of arbitration agreements, as well as consumer perceptions of, and expectations about, dispute resolution with respect to disputes between consumers and financial services

providers.

144

Pursuant to the Paperwork Reduction Act, the Bureau also undertook an extensive public outreach and engagement process in connection with its consumer survey (the results of which are published in Section 3 of the Study). The Bureau obtained approval for the consumer survey from the Office of Management and Budget (OMB), and each version of the materials submitted to OMB during this process included draft versions of the survey instrument.

145

In June 2013, the Bureau published a

Federal Register

notice that solicited public comment on its proposed approach to the survey and received 17 comments in response. In July 2013, the Bureau hosted two roundtable meetings to consult with various stakeholders including industry groups, banking trade associations, and consumer advocates. After considering the comments and conducting two focus groups to help refine the survey, but before undertaking the survey, the Bureau published a second

Federal Register

notice in May 2014, which generated an additional seven comments.

144

Id.

at 129.

145

The survey was assigned OMB control number 3170-0046.

D. The March 2015 Arbitration Study

The Bureau ultimately focused on nine empirical topics in the Study:

1. The prevalence of arbitration agreements in contracts for consumer financial products and services and their main features (Section 2 of the Study);

2. Consumers' understanding of dispute resolution systems, including arbitration and the extent to which dispute resolution clauses affect consumer's purchasing decisions (Section 3 of the Study);

3. How arbitration procedures differ from procedures in court (Section 4 of the Study);

4. The volume of individual consumer financial arbitrations, the types of claims, and how they are resolved (Section 5 of the Study);

5. The volume of individual and class consumer financial litigation, the types of claims, and how they are resolved (Section 6 of the Study);

6. The extent to which consumers sue companies in small claims court with respect to disputes involving consumer financial services (Section 7 of the Study);

7. The size, terms, and beneficiaries of consumer financial class action settlements (Section 8 of the Study);

8. The relationship between public enforcement and consumer financial class actions (Section 9 of the Study); and

9. The extent to which arbitration agreements lead to lower prices for consumers (Section 10 of the Study).

As described further in each subsection below, the Bureau's research on several of these topics drew in part upon data sources previously unavailable to researchers. For example, the AAA voluntarily provided the Bureau with case files for consumer arbitrations filed from the beginning of 2010, approximately when the AAA began maintaining electronic records, to the end of 2012. Compared to data sets previously available to researchers, the AAA case files covered a much longer period and were not limited to case files for cases resulting in an award. Using this data set, the Bureau conducted the first analysis of arbitration frequency and outcomes specific to consumer financial products and services.

146

Similarly, the Bureau submitted orders to financial service providers in the checking account and payday loan markets, pursuant to its market monitoring authority under Dodd-Frank section 1022(c)(4), to obtain a sample set of agreements of those institutions. Using these agreements, among others gathered from other sources, the Bureau conducted the most comprehensive analysis to date of the arbitration content of contracts for consumer financial products and services.

147

146

Study,

supra

note 2, section 5 at 19-68.

147

See generally id.,

section 2.

The results of the Study also broke new ground because the Study, compared to prior research, generally considered larger data sets than had been reviewed by other researchers while also narrowing its analysis to consumer financial products and services. In total, the Study included the review of over 850 agreements for certain consumer financial products and services; 1,800 consumer financial services arbitrations filed over a three-year period; a random sample of the nearly 3,500 individual consumer finance cases identified as having been filed over a period of three years; and all of the 562 consumer finance class actions identified in Federal and selected State courts of the same time period. The study also included over 40,000 small claims court filings over the course of a single year. The Bureau supplemented this research by assembling and analyzing all of the more than 400 consumer financial class action settlements in Federal courts over a five-year period and more than 1,100 State and Federal public enforcement actions in the consumer finance area.

148

The Study also includes the findings of the Bureau's survey of over 1,000 credit card consumers, focused on exploring their knowledge and understanding of arbitration and other dispute resolution mechanisms. The sections below describe in detail the process the Bureau followed in undertaking each section of the Study and summarize the main results of each section.

149

148

Since the publication of the Study, the Bureau determined that 41 FDIC enforcement actions were inadvertently omitted from the results published in Section 9 of the Study. The corrected total number of enforcement actions reviewed in Section 9 was 1,191. Other figures, including the identification of public enforcement cases with overlapping private actions, were not affected by this omission.

149

Overall, the markets assessed in the Study represent lending money (

e.g.,

small-dollar open-ended credit, small-dollar closed-ended credit, large-dollar unsecured credit, large-dollar secured credit), storing money (

i.e.,

consumer deposits), and moving or exchanging money. The Study also included debt relief and debt collection disputes arising from these consumer financial products and services. Study,

supra

note 2, section 1 at 7-9. While credit scoring and credit monitoring were not included in these product categories, settlements regarding such products were included in the Study's analysis of class action settlements, as well as the Study's analysis of the overlap between public enforcement actions and private class action litigation.

Prevalence and Features of Arbitration Agreements (Section 2 of Study)

Section 2 of the Study addresses two central issues relating to the use of arbitration agreements: How frequently such agreements appear in contracts for consumer financial products and services and what features such agreements contain. Among other findings, the Study determined that arbitration agreements are commonly used in contracts for consumer financial products and services and that the AAA is the primary administrator of consumer financial arbitrations.

To conduct this analysis, the Bureau reviewed contracts for six product markets: Credit cards, checking accounts, general purpose reloadable (GPR) prepaid cards, payday loans, private student loans, and mobile wireless contracts governing third-party billing services.

150

Previous studies that analyzed the prevalence and features of arbitration agreements in contracts for consumer financial products and services either relied on small samples or limited their study to one market.

151

As a result, the Bureau's inquiry in Section 2 of the Study represents the most comprehensive analysis to date of the arbitration content of contracts for consumer financial products and services.

150

Study,

supra

note 2, section 2 at 3.

151

Id.,

section 2 at 4-6.

The Bureau's sample of credit card contracts consisted of contracts filed by 423 issuers with the Bureau as required by the Credit Card Accountability, Responsibility and Disclosure Act (CARD Act) as implemented by Regulation Z.

152

Taken together, these contracts covered nearly all consumers in the credit card market. For deposit accounts, the Bureau identified the 100 largest banks and the 50 largest credit unions, and constructed a random sample of 150 small and mid-size banks. The Bureau obtained the deposit account agreements for these institutions by downloading them from the institutions' Web sites and through orders sent to institutions using the Bureau's market monitoring authority.

152

12 CFR 1026.58(c) (requiring credit card issuers to submit their currently-offered credit card agreements to the Bureau to be posted on the Bureau's Web site).

For prepaid cards, the Bureau's sample included agreements from two sources. The Bureau gathered agreements for 52 GPR prepaid cards that were listed on the Web sites of two major card networks and a Web site that provided consolidated card information as of August 2013. The Bureau also obtained agreements from GPR prepaid card providers that had been included in several recent studies of the terms of GPR prepaid cards and that continued to be available as of August 2014.

153

For the storefront payday loan market, the Bureau again used its market monitoring authority to obtain a sample of 80 payday loan contracts from storefront payday lenders in California, Texas, and Florida.

154

For the private student loan market, the Bureau sampled seven private student loan contracts plus the form contract used by 250 credit unions that use a leading credit union service organization.

155

For the mobile wireless market, the Bureau reviewed the wireless contracts of the eight largest facilities-based providers of mobile wireless services

156

which also govern third-party billing services.

157

153

Study,

supra

note 2, section 2 at 18.

154

Id.,

section 2 at 21-22. This data was supplemented with a smaller, non-random sample of payday loan contracts from tribal, offshore, and other online payday lenders, which is reported in Appendix C of the Study.

155

Id,

section 2 at 24.

156

Facilities-based mobile wireless service providers are wireless providers that “offer mobile voice, messaging, and/or data services using their own network facilities,” in contrast to providers that purchase mobile services wholesale from facilities-based providers and resell the services to consumers, among other types of providers. Federal Communications Commission,

Annual Report and Analysis of Competitive Market Conditions with Respect to Mobile Wireless,

at 37-39 (2013),

available at

https://www.fcc.gov/document/16th-mobile-competition-report

157

Study,

supra

note 2, section 2 at 25-26. In mobile wireless third-party billing, a mobile wireless provider authorizes third parties to charge consumers, on their wireless bill, for services provided by the third parties. Because mobile wireless third-party billing involves the extension of credit to, and processing of payments for, consumers in connection with goods and services that the provider does not directly sell and that consumers do not purchase from the provider, the provision of mobile wireless third-party billing is a “consumer financial product or service” under the Dodd-Frank Act. 12 U.S.C. 5481(6), 15(A)(i) and (vii).

The analysis of the agreements that the Bureau collected found that tens of millions of consumers use consumer financial products or services that are subject to arbitration agreements, and that, in some markets such as checking accounts and credit cards, large providers are more likely to have the agreements than small providers.

158

In the credit card market, the Study found that small bank issuers were less likely to include arbitration agreements than large bank issuers.

159

Likewise, only 3.3 percent of credit unions in the credit card sample used arbitration agreements.

160

As a result, while 15.8 percent of credit card issuers included such agreements in their contracts, 53 percent of credit card loans outstanding were subject to such agreements.

161

In the checking account market, the Study again found that larger banks tended to include arbitration agreements in their consumer checking contracts (45.6 percent of the largest 103 banks, representing 58.8 percent of insured deposits).

162

In contrast, only 7.1 percent of small-and mid-sized banks and 8.2 percent of credit unions used arbitration agreements.

163

In the prepaid card and payday loan markets, the Study found that the substantial majority of contracts—92.3 percent of GPR prepaid card contracts and 83.7 percent of the storefront payday loan contracts—included such agreements.

164

In the private student loan and mobile wireless markets, the Study found that most of the large companies—85.7 percent of the private student loan contracts, and 87.5 percent of the mobile wireless contracts—used arbitration agreements.

165

158

Study,

supra

note 2, section 1 at 9.

159

Id.,

section 2 at 10.

160

Id.

161

Id.

As the Study notes, the

Ross

settlement—a 2009 settlement in which four of the ten largest credit card issuers agreed to remove their arbitration agreements—likely impacts these results. Had the settling defendants in

Ross

continued to use arbitration agreements, 93.6 percent of credit card loans outstanding would be subject to arbitration agreements.

Id.

section 2 at 11.

162

Id.,

section 2 at 14.

163

Id.

164

Id.,

section 2 at 19, 22.

165

Id.,

section 2 at 24, 26.

In addition to examining the prevalence of arbitration agreements, Section 2 of the Study reviewed 13 features sometimes included in such agreements.

166

One feature the Bureau studied was which entity or entities were designated by the contract to administer the arbitration. The Study found that the AAA was the predominant arbitration administrator for all the consumer financial products the Bureau examined in the Study. The contracts studied specified the AAA as at least one of the possible arbitration administrators in 98.5 percent of the credit card contracts with arbitration agreements; 98.9 percent of the checking account contracts with arbitration agreements; 100 percent of the GPR prepaid card contracts with arbitration agreements; 85.5 percent of the storefront payday loan contracts with arbitration agreements; and 66.7 percent of private student loan contracts with arbitration agreements.

167

The contracts specified the AAA as the sole option in 17.9 percent of the credit card contracts with arbitration agreements; 44.6 percent of the checking account contracts with arbitration agreements; 63.0 percent to 72.7 percent of the GPR prepaid card contracts with arbitration agreements; 27.4 percent of the payday loan contracts with arbitration agreements; and one of the private student loan contracts the Bureau reviewed.

168

166

Id.,

section 2 at 30.

167

Id.,

section 2 at 38.

168

Id.,

section 2 at 36. The prevalence of GPR prepaid cards with arbitration agreements specifying AAA as the sole option is presented as a range because two GPR prepaid firms studied each used two different form cardholder agreements, with different agreements pertaining to different features. Because of this it was unclear precisely how much of the prepaid market share represented by each provider was covered by a particular cardholder agreement. As such, for GPR prepaid cards, prevalence by market share is presented as a range rather than a single figure.

In contrast, JAMS is specified in relatively fewer arbitration agreements. The Study found that the contracts studied specified JAMS as at least one of the possible arbitration administrators in 40.9 percent of the credit card contracts with arbitration agreements; 34.4 percent of the checking

account contracts with arbitration agreements; 52.9 percent of the GPR prepaid card contracts with arbitration agreements; 59.2 percent of the storefront payday loan contracts with arbitration agreements; and 66.7 percent of private student loan contracts with arbitration agreements. JAMS was specified as the sole option in 1.5 percent of the credit card contracts with arbitration agreements (one contract); 1.6 percent of the checking account contracts with arbitration agreements (one contract); 63.0 percent to 72.7 percent of the GPR prepaid card contracts with arbitration agreements; and none of the payday loan or private student loan contracts the Bureau reviewed.

169

Id.

The Bureau's analysis also found, among other things, that nearly all the arbitration agreements studied included provisions stating that arbitration may not proceed on a class basis. Across each product market, 85 percent to 100 percent of the contracts with arbitration agreements—covering over 99 percent of market share subject to arbitration in the six product markets studied—included such no-class-arbitration provisions.

170

Most of the arbitration agreements that included such provisions also contained an “anti-severability” provision stating that, if the no-class-arbitration provision were to be held unenforceable, the entire arbitration agreement would become unenforceable as a result.

171

170

Id.,

section 2 at 44-47.

171

Id.,

section 2 at 46-47.

The Study found that most of the arbitration agreements contained a small claims court “carve-out,” permitting either the consumer or both parties to file suit in small claims court.

172

The Study similarly explored the number of arbitration provisions that allowed consumers to “opt out” or otherwise reject an arbitration agreement. To exercise the opt-out right, consumers must follow stated procedures, which usually requires all authorized users on an account to physically mail a signed written document to the issuer (electronic submission is permitted only rarely), within a stated time limit. With the exception of storefront payday loans and private student loans, the substantial majority of arbitration agreements in each market studied generally did not include opt-out provisions.

173

172

Id.,

section 2 at 33-34.

173

Id.,

section 2 at 31-32.

The Study analyzed three different types of cost provisions: provisions addressing the initial payment of arbitration fees; provisions that addressed the reallocation of arbitration fees in an award; and provisions addressing the award of attorney's fees.

174

Most arbitration agreements reviewed in the Study contained provisions that had the effect of capping consumers' up front arbitration costs at or below the AAA's maximum consumer fee thresholds. These same arbitration agreements took noticeably different approaches to the reallocation of arbitration fees in the arbitrator's award (approximately one-fifth of the arbitration agreements in credit card, checking account, and storefront payday loan markets permitted shifting company fees to consumers).

175

The Study also found only negligible market shares of relevant markets directed or permitted arbitrators to award attorney's fees to prevailing companies.

176

A significant share of arbitration agreements across almost all markets did not address attorney's fees.

177

174

Id.,

section 2 at 58. Many contracts—particularly checking account contracts—included general provisions about the allocation of costs and expenses arising out of disputes that were

not

specific to arbitration costs. Indeed, such provisions were commonly included in contracts without arbitration agreements as well. While such provisions could be relevant to the allocation of expenses in an arbitration proceeding, the Study did not address such provisions because they were not specific to arbitration agreements.

175

Id.,

section 2 at 62-66.

176

Id.,

section 2 at 67.

177

Id.,

section 2 at 66-76. As described

supra

when the arbitration agreement did not address the issue, the arbitrator is able to award attorney's fees when permitted elsewhere in the agreement or by applicable law.

The Study found that many arbitration agreements permit the arbitrator to reallocate arbitration fees from one party to the other. About one-third of credit card arbitration agreements, one-fourth of checking account arbitration agreements, and half of payday loan arbitration agreements expressly permitted the arbitrator to shift arbitration costs to the consumer.

178

However, as the Study pointed out, the AAA's consumer arbitration fee schedule, which became effective March 1, 2013, restricts such reallocation.

179

With respect to another type of provision that affects consumers' costs in arbitration—where the arbitration must take place—the Study noted that most, although not all, arbitration agreements contained provisions requiring or permitting hearings to take place in locations close to the consumer's place of residence.

180

178

Id.,

section 2 at 62-66.

179

Id.,

section 2 at 61-62.

180

Id.,

section 2 at 53.

Further, most of the arbitration agreements the Bureau studied contained disclosures describing the differences between arbitration and litigation in court. Most agreements disclosed expressly that the consumer would not have a right to a jury trial, and most disclosed expressly that the consumer could not be a party to a class action in court.

181

Depending on the product market, between one-quarter and two-thirds of the agreements disclosed four key differences between arbitration and litigation in court: no jury trial is available in arbitration; parties cannot participate in class actions in court; discovery is typically more limited in arbitration; and appeal rights are more limited in arbitration.

182

The Study found that this language was often capitalized or in boldfaced type.

183

181

Id.,

section 2 at 72.

182

Id.,

section 2 at 72-79.

183

Id.,

section 2 at 72 and n.144.

The Study also examined whether arbitration agreements limited recovery of damages—including punitive or consequential damages—or specified the time period in which a claim had to be brought. The Study determined that most agreements in the credit card, payday loan, and private student loan markets did not include damages limitations. However, the opposite was true of agreements in checking account contracts, where more than three-fourths of the market included damages limitations; prepaid card contracts, almost all of which included such limitations; and mobile wireless contracts, all of which included such limitations. A review of consumer agreements

without

arbitration agreements revealed a similar pattern, albeit with damages limitations being somewhat less common.

184

Id.,

section 2 at 49. More than one-third (35 percent) of large bank checking account contracts without arbitration agreements included either a consequential damages waiver or a consequential damages waiver together with a punitive damages waiver. Similarly a third of prepaid card contracts without arbitration agreements included a consequential damages waiver, a punitive damages waiver, or both. The only mobile wireless contract without an arbitration agreement limited any damages recovery to the amount of the subscriber's bill.

Id.

The Study also found that a minority of arbitration agreements in two markets set time limits other than the statute of limitations that would apply in a court proceeding for consumers to file claims in arbitration. Specifically, these types of provisions appeared in 28.4 percent and 15.8 percent of the checking account and mobile wireless agreements by market share, respectively.

185

Again, a review of consumer agreements without arbitration agreements showed that 10.7 percent of checking account

agreements imposed a one-year time limit for consumer claims.

186

No storefront payday loan, private student loan, or mobile wireless contracts in the sample without arbitration agreements had such time limits.

187

185

Id.,

section 2 at 50.

186

Id.,

section 2 at 51.

187

Id.

The Study assessed the extent to which arbitration agreements included contingent minimum recovery provisions, which provide that consumers would receive a specified minimum recovery if an arbitrator awards the consumer more than the amount of the company's last settlement offer. The Study found that such provisions were uncommon; they appeared in three out of the six private student loan agreements the Bureau reviewed, but, in markets other than student loans, they appeared in 28.6 percent or less of the agreements the Bureau studied.

188

Id.,

section 2 at 70-71 (albeit covering 43.0 percent of the storefront payday loan market subject to arbitration agreements and 68.4 percent of the mobile wireless market subject to arbitration agreements).

Consumer Understanding of Dispute Resolution Systems, Including Arbitration (Section 3 of Study)

Section 3 of the Study presented the results of the Bureau's telephone survey of a nationally representative sample of credit card holders.

189

The survey examined two main topics: (1) The extent to which dispute resolution clauses affected consumer's decisions to acquire credit cards; and (2) consumers' awareness, understanding, and knowledge of their rights in disputes against their credit card issuers. In late 2014, the Bureau's contractor completed telephone surveys with 1,007 respondents who had credit cards.

190

189

The Bureau focused its survey on credit cards because credit cards offer strong market penetration with consumers across the nation. Further, because major credit card issuers are required to file their agreements with the Bureau (12 CFR 1026.58(c)), limiting the survey to credit cards permitted the Bureau to verify the accuracy of many of the respondents' default assumptions about their dispute resolution rights by examining the actual credit card agreements to which the consumers were subject to at the time of the survey.

Id.,

section 3 at 2.

190

Based on the size of the Bureau's sample, its results were representative of the national population, with a sampling error of plus or minus 3.1 percent, though the sampling error is larger in connection with sample sets of fewer than the 1,007 respondents.

Id.,

section 3 at 10.

The consumer survey found that when presented with a hypothetical situation in which their credit card issuer charged them a fee they knew to be wrongly assessed and in which they exhausted efforts to obtain relief from the company through customer service, only 2.1 percent of respondents stated that they would seek legal advice or consider legal proceedings.

191

Almost the same proportion of respondents stated that they would simply pay for the improperly assessed fee (1.7 percent).

192

A majority of respondents (57.2 percent) said that they would cancel their cards.

193

191

Id.,

section 3 at 18.

192

Id.

193

Id.

Respondents also reported that factors relating to dispute resolution—such as the presence of an arbitration agreement—played little to no role when they were choosing a credit card. When asked an open-ended question about all the factors that affected their decision to obtain the credit card that they use most often for personal use, no respondents volunteered an answer that referenced dispute resolution procedures.

194

When presented with a list of nine features of credit cards—features such as interest rates, customer service, rewards, and dispute resolution procedures—and asked to identify those features that factored into their decision, respondents identified dispute resolution procedures as being relevant less often than any other option.

195

194

Id.,

section 3 at 15.

195

Id.

As for consumers' knowledge and default assumptions as to the means by which disputes between consumers and financial service providers can be resolved, the survey found that consumers generally lack awareness regarding the effects of arbitration agreements. Of the survey's 1,007 respondents, 570 respondents were able to identify their credit card issuer with sufficient specificity to enable the Bureau to find the issuer's standard credit card agreement and thus to compare the respondents' beliefs with respect to the terms of their agreements with the agreements' actual terms.

196

Among the respondents whose credit card contracts did not contain an arbitration agreement, when asked if they could sue their credit card issuer in court, 43.7 percent answered “Yes,” 7.7 percent answered “No,” and 47.8 percent answered “Don't Know.”

197

At the same time, among the respondents whose credit card agreements

did

contain arbitration requirements, 38.6 percent of respondents answered “Yes,” while 6.8 percent answered “No,” and 54.4 percent answered “Don't Know.”

198

Even the 6.8 percent of respondents who stated that they could not sue their credit card issuers in court may not have had knowledge of the arbitration agreement: As noted above, a similar proportion of respondents

without

an arbitration agreement in their contract—7.7 percent compared to 6.8 percent—reported that they could not sue their issuers in court.

199

When asked if they could participate in class action lawsuits against their credit card issuer, more than half of the respondents whose contracts had pre-dispute arbitration agreements thought they could participate (56.7 percent).

200

196

Id.,

section 3 at 18.

197

Id.,

section 3 at 18-20.

198

Id.

These respondents were asked additional questions to account for the possibility that respondents who answered “Yes” meant suing their issuers in small claims court; that they meant they could bring a lawsuit even though they are subject to an arbitration agreement; or that they had previously “opted-out” of their arbitration agreements with their issuers. With those caveats in mind and after accounting for demographic weighting, the Study found that the consumers whose credit cards included arbitration requirements were wrong at least 79.8 percent of the time.

Id.,

section 3 at 20-21.

199

Id.,

section 3 at 18-20.

200

Id.,

section 3 at 25.

Respondents were also generally unaware of any opt-out opportunities afforded by their issuer. Only one respondent whose current credit card contract permitted opting out of the arbitration agreement recalled being offered such an opportunity.

201

Id.,

section 3 at 21 & 21 n.44. Eighteen other respondents recalled being offered an opportunity to opt out of their arbitration requirements. But, for the respondents whose credit card agreements the Bureau could identify, none of their 2013 agreements actually contained opt-out provisions. In fact, four of the agreements did not even contain pre-dispute arbitration provisions.

Comparison of Procedures in Arbitration and in Court (Section 4 of Study)

While the Study generally limited its scope to empirical analysis of dispute resolution, Section 4 of the Study compared the procedural rules that apply in court and in arbitration. Particularly given changes to the AAA consumer fee schedule that took effect March 1, 2013, the procedural rules are relevant to understanding the context from which the Study's empirical findings arise.

The Study's procedural overview described court litigation as reflected in the Federal Rules and, as an example of a small claims court process, the Philadelphia Municipal Court Rules of Civil Practice. It compared those procedures to arbitration procedures as set out in the rules governing consumer arbitrations administered by the two leading arbitration administrators in the United States, the AAA and JAMS. The Study compared arbitration and court procedures according to eleven factors: The process for filing a claim, fees, legal

representation, the process for selecting the decision maker, discovery, dispositive motions, class proceedings, privacy and confidentiality, hearings, judgments and awards, and appeals.

Filing a Claim and Fees.

The Study described the processes for filing a claim in court and in arbitration. With respect to fees, the Study noted that the fee for filing a case in Federal court is $350 plus a $50 administrative fee—paid by the party filing suit, regardless of the amount being sought—and the fee for a small claims filing in Philadelphia Municipal Court ranges from $63 to $112.38.

202

In arbitration, under the AAA consumer fee schedule that took effect March 1, 2013, the consumer pays a $200 administrative fee, regardless of the amount of the claim and regardless of the party that filed the claim; in JAMS arbitrations, when a consumer initiates arbitration against the company, the consumer is required to pay a $250 fee.

203

Prior to March 1, 2013, arbitrators in AAA consumer arbitrations had discretion to reallocate fees in the ultimate award. After March 1, 2013, arbitrators can only reallocate arbitration fees in the award if required by applicable law or if the claim “was filed for purposes of harassment or is patently frivolous.”

204

202

Id.,

section 4 at 10. As the Study noted, a federal statute permits indigent plaintiffs filing in Federal court to seek to have the court waive the required filing fees.

Id.

(citing 28 U.S.C. 1915(a)).

203

Id.,

section 4 at 11-12.

204

Id.,

section 4 at 11-12.

Parties in court generally bear their own attorney's fees, unless a statute or contract provision provides otherwise or a party is shown to have acted in bad faith. However, under several consumer protection statutes, providers may be liable for attorney's fees.

205

Under the AAA's Consumer Rules, “[t]he arbitrator may grant any remedy, relief, or outcome that the parties could have received in court, including awards of attorney's fees and costs, in accordance with the law(s) that applies to the case.”

206

205

See, e.g.,

15 U.S.C. 1640(a)(3) (TILA).

206

Study,

supra

note 2, section 4 at 12.

Representation.

The Study noted that in most courts, individuals can either represent themselves or hire a lawyer as their representative.

207

In arbitration, the rules are more flexible than in many courts about the identity of any party representative. For example, the AAA Consumer Rules permit a party to be represented “by counsel or other authorized representative, unless such choice is prohibited by applicable law.”

208

Some states, however, prohibit non-attorneys to represent parties in arbitration.

209

207

Id.,

section 4 at 13.

208

Id.,

section 4 at 13-14.

209

Id.,

section 4 at 14.

Selecting the Decisionmaker.

The Study noted that court rules generally do not permit parties to reject the judge assigned to hear their case.

210

In arbitration, if the parties agree on the individual they want to serve as arbitrator, they can choose that person to decide their dispute; if the parties cannot agree on the arbitrator, the arbitrator is selected following the procedure specified in their contract or in the governing arbitration rules.

211

210

Id.

211

Id.,

section 4 at 15.

Discovery.

The Study stated that the Federal Rules provide a variety of means by which a party can discover evidence in the possession of the opposing party or a third party, while the right to discovery in arbitration is more limited.

212

Arbitration rules on discovery give the arbitrator authority to manage discovery “with a view to achieving an efficient and economical resolution of the dispute, while at the same time promoting equality of treatment and safeguarding each party's opportunity to present its claims and defenses.” AAA Commercial Rules, Rule R-22,

cited in

Study,

supra

note 2, section 4 at 16-17. Arbitration rules do not allow for broad discovery from third parties, which were not parties to the underlying agreement to arbitrate disputes. Section 7 of the FAA, however, grants arbitrators the power to subpoena witnesses to appear before them (and bring documents). 9 U.S.C. 7. Appellate courts are split on whether Section 7 of the FAA authorizes subpoenas for discovery

before

an arbitral hearing. Study,

supra

note 2, section 4 at 17 n.78. As described above, many arbitration agreements highlighted the difference in discovery practices in arbitration proceedings as compared to litigation.

See id.

Dispositive Motions.

The Study noted that the Federal Rules provide for a variety of motions by which a party can seek to dispose of the case, either in whole or in part, while arbitration rules typically do not expressly authorize dispositive motions.

213

Study,

supra

note 2, section 4 at 18.

Class Proceedings.

The Study described the procedural rules for class actions under Federal Rule 23 and noted that the Bureau was unaware of a class action procedure for small claims court.

214

The Study further noted that the AAA and JAMS have adopted rules, derived from Rule 23, for administering arbitrations on a class basis.

215

214

Id.,

section 4 at 18-20.

215

Id.,

section 4 at 20.

Privacy and Confidentiality.

The Study stated that court litigation (including small claims court) is a public process, with proceedings conducted in public courtrooms and the record generally available for public review; by comparison, arbitration is a private although not necessarily a confidential process.

216

Id.,

section 4 at 21-22. A small minority of arbitration agreements, primarily in the checking account market, included provisions requiring that the proceedings remain confidential.

Id.,

section 2 at 51-53.

Hearings.

The Study stated that if a case in court does not settle before trial or get resolved on a dispositive motion, it will proceed to trial in the court in which the case was filed. A jury may be available for these claims. On the other hand, if an arbitration filing does not settle, the arbitrator can resolve the parties' dispute based on the parties' submission of documents alone, by a telephone hearing, or by an in-person hearing.

217

Id.,

section 4 at 22-24.

Judgments/Awards.

The Study further noted that the outcome of a case in court is reflected in a judgment, which the prevailing party can enforce through various means of post-judgment relief, and that the outcome of a case in arbitration is reflected in an award, which, once turned into a court judgment, can be enforced the same as any other court judgment.

218

Id.,

section 4 at 24.

Appeals.

The Study stated that parties in court can appeal a judgment against them to an appellate court; by comparison, parties can challenge arbitration awards in court only on the more limited grounds set out in the FAA.

219

Courts may vacate arbitration awards under the FAA only in limited circumstances. 9 U.S.C. 10.

Cf. supra

notes 98-106 and accompanying text (identifying the narrow grounds upon which a court may determine an arbitration agreement to be unenforceable).

Consumer Financial Arbitrations: Frequency and Outcomes (Section 5 of Study)

Section 5 of the Study analyzed arbitrations of consumer finance disputes between consumers and consumer financial services providers. This section tallied the frequency of such arbitrations, including the number of claims brought and a classification of which claims were brought. It also examined outcomes, including how cases were resolved and how consumers and companies fared in the relatively small share of cases that an arbitrator resolved on the merits. The Study performed this analysis for arbitrations concerning credit cards, checking accounts, payday loans, GPR prepaid cards, private student loans, and auto purchase loans. To conduct this analysis, the Bureau used electronic case files from the AAA.

220

Pursuant to

a non-disclosure agreement, the AAA voluntarily provided the Bureau its electronic case records for consumer disputes filed during the years 2010, 2011, and 2012.

221

Because the AAA provided the Bureau with case records for all disputes filed in arbitration during this period, Section 5 of the Study provides a reasonably complete picture of the frequency and typology of claims that consumers and companies file in arbitration.

222

220

See

Christopher R. Drahozal & Samantha Zyontz,

An Empirical Study of AAA Consumer

Arbitrations,

25 Ohio St. J. on Disp. Res. 843, 845 (2010) (reviewing 301 AAA consumer disputes covering a nine-month period in 2007, but limiting analysis to disputes actually resolved by arbitrators); Drahozal & Zyontz,

Creditor Claims in Arbitration and in Court,

7 Hastings Bus. L. J. 77 (2011) (follow-on study that compared debt collection claims by companies in AAA consumer arbitrations with debt collection claims in Federal court and in State court proceedings in jurisdictions in Virginia and Oklahoma).

221

Study,

supra

note 2, section 5 at 17.

222

While the analysis does not provide a window into how arbitrations are resolved in other arbitral fora, the AAA is the predominant administrator of consumer financial arbitrations.

Id.,

section 2 at 35.

The Study identified about 1,847 filings in total—about 616 per year—with the AAA for the six product markets combined.

223

According to the standard AAA claim forms, about 411 arbitrations per year were designated as having been filed by consumers alone; the remaining filings were designated as having been filed by companies or filed as mutual submission by both the consumer and the company.

224

Forty percent of the arbitration filings involved a dispute over the amount of debt a consumer allegedly owed to a company, with no additional affirmative claim by either party; in 31 percent of the filings, parties brought affirmative claims with no formal dispute about the amount of debt owed; in another 29 percent of the filings, consumers disputed alleged debts, but also brought affirmative claims against companies.

225

223

Study,

supra

note 2, section 5 at 9.

224

Id.,

section 1 at 11. Under the AAA policies that applied during the period studied, a company could unilaterally file a debt collection dispute against a consumer in arbitration only if a preceding debt collection litigation had been dismissed or stayed in favor of arbitration. Companies could file disputes mutually with consumers; they could also file counterclaims in dispute filed by consumers against them.

Id.,

section 5 at 27 n.56. As noted in the Study, the Bureau did not attempt to verify whether the representation on the claim forms as to the party filing the case was accurate. For example, in a number of cases that were designated as having been filed by a consumer, the record indicates that the consumer failed to prosecute the action and that the company actually paid the fees and obtained a quasi-default judgment. In other cases, a law firm representing consumers filed a number of student loan disputes but indicated on the checkbox that the action was being filed by the company.

Id.,

section 5 at 19 n.38.

225

Id.,

section 1 at 11.

Although claim amounts varied by product, in disputes involving affirmative claims by consumers, the average amount of such claims was approximately $27,000 and the median amount of such claims was $11,500.

226

About 25 disputes a year involved affirmative claims by consumers of $1,000 or less.

227

In debt disputes, the average disputed debt amount was approximately $15,700; the median was approximately $11,000.

228

Across all six product markets, about 25 cases per year involved disputed debts of $1,000 or less.

229

226

Id.,

section 5 at 10.

227

Id.

228

Id.

229

Id.

Overall, consumers were represented by counsel in 63.2 percent of arbitration cases.

230

The rate of representation, however, varied widely based on the product at issue; in payday and student loan disputes, for example, consumers had counsel in about 95 percent of all cases filed.

231

230

Id.,

section 5 at 29.

231

Id.,

section 5 at 28-32.

To analyze the outcomes in arbitration, the Bureau confined its analysis to claims filed in 2010 and 2011 in order to limit the number of cases that were pending at the close of the period for which the Bureau had data. The Bureau's analysis of arbitration outcomes was limited by a number of factors that are unavoidable in any review of dispute resolution.

232

Among other issues, settlement terms were rarely known if the parties settled their disputes. In many cases, even the fact that a settlement occurred was difficult to discern because the parties were not required to notify the AAA of a settlement.

233

Accordingly, an incomplete file could indicate a settlement, on the one hand, or that the proceeding was still in progress but relatively dormant, on the other hand. Because parties settle claims strategically, disputes that

did

reach an arbitrator's decision on the merits were not a representative sample of the disputes that were filed.

234

For example, if parties settled all strong consumer (or company) claims, then consumers (or companies) may appear to do poorly before arbitrators because only weak claims are heard at hearings. As the Study explained, these limitations are inherent in a review of this nature and unavoidable.

232

Id.,

section 5 at 4-7. As a result, the Bureau was only able to determine a substantive outcome in 341 cases.

233

Id.,

section 5 at 6.

234

Id.,

section 5 at 7 (noting that it is “quite challenging to attempt to answer even the simple question of how well do consumers (or companies) fare in arbitration”). The Study notes further that the same selection bias concerns apply to disputes filed in litigation and that “[t]hese various considerations warrant caution in drawing conclusions as to how well consumers or companies fare in arbitration as compared to litigation.”

Id.

For example, the Study found that the disputes that parties filed in arbitration differ from the disputes filed in litigation.

Id.

With those significant caveats noted, the Study determined that in 32.2 percent of the 1,060 disputes filed during the first two years of the study period (341 disputes) arbitrators resolved the dispute on the merits. In 23.2 percent of the disputes (246 disputes), the record shows that the parties settled. In 34.2 percent of disputes (362 disputes), the available AAA case record ends in a manner that is consistent with settlement—for example, a voluntary dismissal of the action—but the Bureau could not definitively determine that settlement occurred. In the remaining 10.5 percent of disputes (111 disputes), the available AAA case record ends in a manner suggesting the dispute is unlikely to have settled; for example, the AAA may have refused to administer the dispute because it determined that the arbitration agreement at issue was inconsistent with the AAA's Consumer Due Process Protocol.

235

Id.

As noted above, only a small portion of filed arbitrations reached a decision. The Study identified 341 cases filed in 2010 and 2011 that were resolved by an arbitrator and for which the outcome was ascertainable.

236

Of these 341 cases, 161 disputes involved an arbitrator decision on a consumer's affirmative claim. Of the cases in which the Bureau could determine the results, the consumer obtained relief on their affirmative claims in 32 disputes (20.3 percent).

237

Consumers obtained debt forbearance in 19.2 percent of the cases in which an arbitrator could have provided some form of debt forbearance (46 cases).

238

The total amount of affirmative relief awarded in all cases was $172,433 and total debt forbearance was $189,107.

239

Of the 52 cases filed in 2010 and 2011 that involved consumer affirmative claims of $1,000 or less, arbitrators resolved 19, granting affirmative relief to consumers in four

such cases.

240

With respect to disputes involving company claims, the Bureau could determine the terms of arbitrator awards relating to company claims in 244 of the 421 disputes involving company claims filed in 2010 and 2011.

241

Arbitrators provided companies some type of relief in 227, or 93.0 percent, of those disputes. In those 227 disputes, companies won a total of $2,806,662.

242

236

Id.,

section 5 at 13.

237

Id.

238

Id.

239

Of the 244 cases in which companies made claims or counterclaims that the Bureau could determine were resolved by arbitrators, companies obtained relief in 227 disputes. The total amount of relief in those cases was $2,806,662. These totals included 60 cases in which the company advanced fees for the consumer and obtained an award without participation by the consumer. Excluding those 60 cases, the total amount of relief awarded by arbitrators to companies was $2,017,486.

Id.,

section 5 at 12.

240

Id.

241

This includes cases filed by companies as well as cases in which companies asserted counterclaims in consumer-initiated disputes.

Id.,

section 5 at 14.

242

Id.,

section 5 at 43-44. Excluding 60 cases in which companies paid filing fees for consumers who failed to pay their initial fees—resulting in what appears to be decisions similar to default judgments—companies won a total of $2,017,486.

Id.

at 44.

The Study found that consumers appealed very few arbitration decisions and companies appealed none. Specifically, it found four arbitral appeals filed between 2010 and 2012. Consumers without counsel filed all four. Three of the four were closed after the parties failed to pay the required administrator fees and arbitrator deposits. In the fourth, a three-arbitrator panel upheld an arbitration award in favor of the company after a 15-month appeal process.

243

Id.,

section 5 at 85.

The Study also found that very few class arbitrations were filed. The Study identified only two filed between 2010 and 2012. One was still pending on a motion to dismiss as of September 2014. The other file contained no information other than the arbitration demand that followed a State court decision granting the company's motion seeking arbitration.

244

Id.,

section 5 at 86-87.

The Study also found that, when there was a decision on the merits by an arbitrator, the average time to resolution was 179 days, and the median time to resolution was 150 days. When the record definitively indicated that a case had settled, the median time to settlement was 155 days from the filing of the initial claim.

245

Further, the Study found that more than half of the filings that reached a decision were resolved by “desk arbitrations,” meaning that the proceedings were resolved solely on the basis of documents submitted by the parties (57.8 percent). Approximately one-third (34.0 percent) of proceedings were resolved by an in-person hearing, 8.2 percent by telephonic hearings, and 2.4 percent through a dispositive motion with no hearing.

246

When there was an in-person hearing, the Study estimated that consumers travelled an average of 30 miles and a median of 15 miles to attend the hearing.

247

245

Id.,

section 5 at 71-73.

246

Id.,

section 5 at 69-70.

247

Id.,

section 5 at 70-71.

Consumer Financial Litigation: Frequency and Outcomes (Section 6 of Study)

The Study's review of consumer financial litigation in court represents, the Bureau believes, the only analysis of the frequency and outcomes of consumer finance cases to date. While there is a large body of research regarding cases filed in court generally, preexisting studies of consumer finance cases either assessed only the number of filings—not typologies and outcomes, as the Study did—or focused on the frequency of cases filed under individual statutes.

248

The Study performed this analysis for individual court litigation concerning five of the same six product markets as those covered by its analysis of consumer financial arbitration: Credit cards, checking accounts and debit cards; payday loans; GPR prepaid cards; and private student loans. In addition, the study analyzed class cases filed in these five markets and also with respect to automobile loans. This analysis focused on cases filed from 2010 to 2012, as an analogue to the years for which electronic AAA records were available, and captured outcomes reflected on dockets through February 28, 2014.

248

See, e.g.,

Thomas E. Willging, Laural L. Hooper & Robert J. Niemic,

Empirical Study of Class Actions in Four Federal District Courts: Final Report to the Advisory Committee on Civil Rules

(Fed. Judicial Ctr., 1996),

available at

http://www.uscourts.gov/file/document/empirical-study-class-actions-four-federal-district-courts-final-report-advisory

; ACA International,

FDCPA Lawsuits Decline While FCRA and TCPA Filings Increase,

(reporting on January 2014 case filings under FDCPA as reported by Webrecon),

available at

http://www.acainternational.org/news-fdcpa-lawsuits-decline-while-fcra-and-tcpa-filings-increase-31303.aspx

cited in

Study,

supra

note 2, section 6 at 9-11.

The Bureau's class action litigation analysis extended to all Federal district courts. To conduct this analysis, the Bureau collected complaints concerning these six products using an electronic database of pleadings in Federal district courts.

249

The Bureau also reviewed Federal multidistrict litigation (MDL) proceedings to identify additional consumer financial complaints filed in Federal court. After the Bureau identified its set of Federal class complaints concerning the six products and individual complaints concerning the five products, it collected the docket sheet from the Federal district court in which the complaint was filed in order to analyze relevant case events. The Bureau also collected State court class action complaints from three States (Utah, Oklahoma, and New York) and seven counties that had a public electronic database in which complaints were regularly available.

250

The Bureau determined that it was feasible to collect class action complaints from the State and county databases, but not complaints in individual cases from those databases.

251

Collectively, this State court sample accounted for 18.1 percent of the U.S. population as of 2010.

252

249

LexisNexis CourtLink,

http://www.lexisnexis.com/en-us/products/courtlink-for-corporate-or-professionals.page

250

To determine what counties to include in the data set, the Bureau started with the Census Bureau's list of the ten most populous U.S. counties. The Bureau then excluded the two counties on that list that were already included in the State court sample (two in New York City) and one additional county that did not have a public electronic database in which complaints were regularly available. The remaining seven counties were the counties in the Bureau's data set.

251

Study,

supra

note 2, appendix L at 71.

252

Id.,

section 6 at 15;

see generally id.,

appendix L.

The Study's analysis of putative class action filings identified 562 cases filed by consumers from 2010 through 2012 in Federal courts and selected State courts concerning the six products, or about 187 per year.

253

Of these 562 putative class cases, 470 were filed in Federal court, and the remaining 92 were filed in the State courts in the Bureau's State court sample set.

254

In Federal court class cases, the most common claims were under the FDCPA and State UDAP statutes.

255

In State court class cases, State law claims predominated.

256

All Federal and State class cases sought monetary relief. Unlike the AAA arbitration rules, court rules of procedure generally do not require plaintiffs to identify specific claim amounts in their pleadings. Accordingly, the Bureau had limited ability to ascertain the number of “small” claims asserted in class action litigation, as compared to the 25 arbitration disputes each year in the markets analyzed in the AAA case set that included consumer affirmative claims of $1,000 or less.

257

The Bureau was able to determine, however, that

more than a third of the 562 class cases sought statutory damages only under Federal statutes that cap damages available in class proceedings (sometimes accompanied by claims for actual damages). In addition, nearly 90 percent of the 562 class cases did not seek statutory damages under Federal statutes that do not cap damages available in class proceedings.

258

253

Id.,

section 6 at 6. Due to limitations of the electronic database coverage and searchability of State court pleadings, the Bureau does not believe the electronic search of U.S. District Court pleadings identified a meaningful set of complaints filed in State court and subsequently removed to Federal court.

Id.,

section 6 at 13.

254

Id.,

section 6 at 6. Because the Bureau's State sample accounted for about one-fifth of the U.S. population, the actual number of State class filings would have been higher, but the Bureau cannot say by how much.

Id.

255

Id.

256

Id.

257

Id.

258

Id.,

section 6 at 22-26. The “capped” claims arose from five statutory schemes: The Expedited Funds Availability Act, EFTA, the FDCPA, TILA (including the Consumer Leasing Act and the Fair Credit Billing Act), and ECOA (which provides for punitive and actual damages but not statutory damages).

Id.,

section 6 at 23 n.45 (describing damages limitations). In over half of the cases in which Federal statutory damages were sought, the consumers also sought actual damages.

Id.,

section 6 at 25 n.48.

As with the Study's analysis of the arbitration proceedings noted above, the Study set out a number of explicit and inherent limitations to its analysis of litigation outcomes.

259

While the available data indicated that most court cases were resolved by settlement or in a manner consistent with a settlement, the terms of any settlement were, for reasons noted previously, typically unavailable from the court record unless the settlement was on a class basis. The bulk of cases, therefore, including individual cases and cases filed as a class action but that settled on an individual basis only, resulted in unknown substantive outcomes.

260

Other limitations, however, were unique to the review of litigation filings. For instance, the lack of specific information about claim amounts in court filings meant that the Study was unable to offer a meaningful analysis of recovery rates.

261

Further, some cases in court often could not be reduced to a single result because plaintiffs in those cases may have alleged multiple claims against multiple defendants and one case can have multiple outcomes across the different claims and parties. For this reason, the Study reported on several types of outcomes, more than one of which may have occurred in any single case.

262

In addition, while the Bureau stated that its data set of State court complaints appears to be the most robust available, the Bureau noted the dataset's limitations. For example, the three states and seven additional counties from which we collected complaints filed in State court may not be representative of the consumer financial litigation filed in State courts nationwide.

263

259

Id.,

section 6 at 2-5.

260

Id.,

section 6 at 8.

261

Id.,

section 6 at 3.

262

Id.,

section 6 at 3-4.

263

Id.,

section 6 at 15 n.34.