# Arbitration Agreements

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2017-14225

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** July 19, 2017
- **Citation:** 82 FR 33210

## 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:

Final rule; official interpretations.

SUMMARY:

Pursuant to section 1028(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Bureau of Consumer Financial Protection (Bureau) is issuing this final rule to regulate arbitration agreements in contracts for specified consumer financial product and services. First, the final rule prohibits 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 concerning the covered consumer financial product or service. Second, the final rule requires covered providers that are involved in an arbitration pursuant to a pre-dispute arbitration agreement to submit specified arbitral records to the Bureau and also to submit specified court records. The Bureau is also adopting official interpretations to the regulation.

DATES:

Effective date:
This regulation is effective September 18, 2017.

Compliance date:
Mandatory compliance for pre-dispute arbitration agreements entered into on or after March 19, 2018.

FOR FURTHER INFORMATION CONTACT:

Benjamin Cady and Lawrence Lee Counsels; Owen Bonheimer, Eric Goldberg and Nora Rigby Senior Counsels, Office of Regulations, Consumer Financial Protection Bureau, at 202-435-7700 or
cfpb_reginquiries@cfpb.gov.

SUPPLEMENTARY INFORMATION:

I. Summary of the Final Rule

On May 24, 2016, the Bureau of Consumer Financial Protection published a proposal to establish 12 CFR part 1040 to address certain aspects of consumer finance dispute resolution.
1

Following a public comment period and review of comments received, the Bureau is now issuing a final rule governing agreements that provide for the arbitration of any future disputes between consumers and providers of certain consumer financial products and services.

1
Arbitration Agreements, 81 FR 32830 (May 24, 2016).

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).
2

In 2015, the Bureau published and delivered to Congress a study of arbitration (Study).
3

In the Dodd-Frank Act, Congress also authorized the Bureau, after completing the 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.
4

Congress also required that the findings in any such rule be consistent with the Bureau's Study.
5

In accordance with this authority, the final rule issued today imposes two sets of limitations on the use of pre-dispute arbitration agreements by covered providers of consumer financial products and services. First, the final rule prohibits providers from using a pre-dispute arbitration agreement to block consumer class actions in court and requires most providers to insert language into their arbitration agreements reflecting this limitation. This final rule is based on the Bureau's 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.

2
Public Law 111-203, 124 Stat. 1376 (2010), section 1028(a).

3
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 final rule where relevant, and the entire Study will be included in the docket for this rulemaking at
www.regulations.gov.

4
Dodd-Frank section 1028(b).

5

Id.

Second, the final rule requires providers that use pre-dispute arbitration agreements to submit certain records relating to arbitral and court proceedings to the Bureau. The Bureau will use the information it collects to continue monitoring arbitral and court proceedings to determine whether there are developments that raise consumer protection concerns that may warrant further Bureau action. The Bureau is also finalizing provisions that will require it to publish the materials it collects on its Web site with appropriate redactions as warranted, to provide greater transparency into the arbitration of consumer disputes.

The final rule applies 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, subject to certain exclusions specified in the rule, providers that are engaged in:

• Extending consumer credit, participating in consumer credit decisions, or referring or selecting creditors for non-incidental consumer credit, each when done by a creditor under Regulation B implementing the Equal Credit Opportunity Act (ECOA), acquiring or selling consumer credit, and servicing an extension of consumer credit;

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

• providing services to assist with debt management or debt settlement, to modify the terms of any extension of consumer credit, or to avoid foreclosure, and providing products or services represented to remove derogatory information from, or to improve, a person's credit history, credit record, or credit rating;

• providing directly to a consumer a consumer report as defined in the Fair Credit Reporting Act (FCRA), a credit score, or other information specific to a consumer derived from a consumer file, except for certain exempted adverse action notices (such as those provided by employers);

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

• transmitting or exchanging funds (except when necessary to another product or service not covered by this rule offered or provided by the person transmitting or exchanging funds), 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 (FDCPA).

Consistent with the Dodd-Frank Act, the final rule applies only to agreements entered into after the end of the 180-day period beginning on the regulation's

effective date.
6

The Bureau is adopting an effective date of 60 days after the final rule is published in the
Federal Register
. To facilitate implementation and ensure compliance, the final rule requires providers in most cases to insert specified language into their arbitration agreements to explain the effect of the rule. The final rule also permits 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 final rule's requirement not to use an arbitration agreement to block a class action.

6
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.
7

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 final rule generally refers to as “arbitration agreements”§
8

—have a long history, primarily in commercial contracts, where companies historically had bargained to create agreements tailored to their needs.
9

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.
10

7
“Arbitration,” Black's Law Dictionary (10th ed. 2014).

8
Section 1040.2(d) defines the phrase “pre-dispute arbitration agreement.” When referring to the definition, in § 1040.2(d), this final rule uses the full term or otherwise clarifies the intended usage.

9

See infra
Part II.C.

10
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. As is underscored by the range of comments received on the proposal, 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 and limit the filing or resolution of certain claims in court or in arbitration.

In recent years, 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,
11

authorized the Securities and Exchange Commission (SEC) to regulate arbitration agreements in contracts between consumers and securities broker-dealers and investment advisers,
12

and prohibited the use of arbitration agreements in connection with certain whistleblower proceedings.
13

11
Dodd-Frank section 1414(e) (codified as 15 U.S.C. 1639c(e)).

12
Dodd-Frank sections 921(a) and 921(b) (codified as 15 U.S.C. 78o(o) and 15 U.S.C. 80b-5(f)).

13
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.
14

Congress also required that the findings in any such rule be consistent with the study.
15

The Bureau solicited input on the appropriate scope, methods, and data sources for the study in 2012
16

and released results of its three-year Study in March 2015.
17

Part III of this final 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.

14
Dodd-Frank section 1028(b).

15

Id.

16
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).

17
Study,
supra
note 3. 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 typically 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 and, depending on the contract and the product or service, a service provider to the underlying provider.

Early Consumer Protection in the Law

Prior to the twentieth century, the law generally embraced the notion of
caveat emptor,
or “buyer beware” in consumer affairs.
18

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.
19

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.
20

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

18

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 Application of Consumer Protection Law: Judicial Activism or Legislative Directive,” 32 Santa Clara L. Rev. 347, at 351-55 (1992).

19
Wheeler-Lea Act of 1938, Public Law 75-447, 52 Stat. 111 (1938).

20

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
v.
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.
21

The CCPA included the Truth in Lending Act (TILA), which imposed disclosure and other requirements on creditors.
22

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.
23

21
Public Law 90-321, 82 Stat. 146 (1968).

22

Id.
at title I.

23
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 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.
24

In 1974, Congress passed the ECOA to prohibit creditors from discriminating against applicants with respect to credit transactions.
25

In 1977, Congress passed the FDCPA to promote the fair treatment of consumers who are subject to debt collection activities.
26

24
Public Law 91-508, 84 Stat. 1114-2 (1970).

25
Congress amended that law in 1976. Public Law 94-239, 90 Stat. 251 (1976).

26
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.

In the 1960s, States began passing their own consumer protection statutes modeled on the FTC Act to prohibit unfair and deceptive practices. Unlike the FTC Act, however, these State statutes typically provide for private enforcement.
27

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.
28

Currently, 49 of the 50 States and the District of Columbia have State consumer protection statutes modeled on the FTC Act that allow for private rights of action.
29

27
Victor E. Schwartz & Cary Silverman, “Common Sense Construction of Consumer Protection Acts,” 54 U. Kan. L. Rev. 1, at 15-16 (2005).

28

Id.

29

Id.
at 16. Every State prohibits deception; some prohibit unfair practices as well.
See
Carolyn L. Carter, “Consumer Protection in the States,” Nat'l Consumer L. Ctr., at 5 (2009),
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 the wave of consumer financial protection statutes described above, 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 an individual to group his or her claims together with those of other, absent individuals in one lawsuit under certain circumstances and to obtain monetary or injunctive relief for the group. 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 class actions.
30

30

See, e.g., Wilcox
v.
Commerce Bank of Kansas City,
474 F.2d 336, 343-44 (10th Cir. 1973).

Indeed, Congress affirmatively calibrated enforcement through private class actions in several of the consumer protection statutes by specifically referring to class actions and adopting statutory damage schemes that are capped by a percentage of the defendants' net worth.
31

For example, when consumers initially sought to bring TILA class actions, a number of courts applying Federal Rule 23 denied motions to certify a class because of the prospect of extremely large damages resulting from the aggregation of a large number of claims for statutory damages.
32

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.
33

Congress has twice increased the cap on class action damages in TILA: To $500,000 in 1976 and $1,000,000 in 2010.
34

Many other statutes similarly cap damages in class actions.
35

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.
36

Similarly, many State legislatures contemplated consumers' filing of class actions to vindicate violations of their versions of the FTC Act.
37

A minority of States expressly prohibit class actions to enforce their FTC Acts.
38

31
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.

32

See, e.g., Ratner
v.
Chem. Bank N.Y. Trust Co.,
54 FRD. 412, 416 (S.D.N.Y. 1972).

33

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

34
Truth in Lending Act Amendments, Public Law 94-240, 90 Stat. 260 (1976); Dodd-Frank section 1416(a)(2).

35
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).

36

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.”

37
The UDAP laws of at least 14 States expressly permit class action lawsuits.
See, e.g.,
Cal. Bus. & Prof. 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 secs. 13-11-19 and 20 (2015); Wyo. Stat. sec. 40-12-108(b) (2015).

38

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.
39

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.
40

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.
41

39

Ortiz
v.
Fibreboard Corp.,
527 U.S. 815, 832-33 (1999).

40
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, at 704 (2013) (citing Stephen C. Yeazell, From Medieval Group Litigation to the Modern Class Action 40 (1987)).

41
7A Charles Alan Wright & Arthur R. Miller, “Federal Practice and Procedure: Civil § 1751” (3d ed. 2002).

The bill of peace was recognized in early United States case law and ultimately adopted by several State courts and the Federal courts.
42

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 Federal Rule 23 established a procedure for class actions.
43

That procedure's ability to bind absent class members was never clear, however.
44

42

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.

43

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

44

See American Pipe & Constr. Co.
v.
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 Federal Rule 23 was amended to create the class action mechanism that largely persists in the same form to this day.
45

Federal 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.
46

The 1966 revisions to Federal 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.”
47

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.”
48

Class actions have been brought not only by individuals, but also by companies, including financial institutions.
49

45

See, e.g.,
Robert H. Klonoff, “The Decline of Class Actions,” 90 Wash. U. L. Rev. 729, at 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”). In 1966, a member of the Advisory Committee explained that the class action device was designed to bind all absent class members because “Requiring . . . individuals affirmatively to request inclusion in the lawsuit would result in freezing out the claims of people—especially small claims held by small people—who for one reason or another, ignorance, timidity, unfamiliarity with business or legal matters, will simply not take the affirmative step. The moral justification for treating such people as null quantities is questionable. For them the class action serves something like the function of an administrative proceeding where scattered individual interests are represented by the Government.” Benjamin Kaplan, “Continuing the Work of the Civil Committee: 1966 Amendments of the Federal Rules of Civil Procedure (i),” 81 Harv. L. Rev. 356, at 397-98 (1967).

46

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.”).

47

Califano
v.
Yamasaki,
442 U.S. 682, 701 (1979).

48

Amchem Prod., Inc.
v.
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 Federal 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 id.
at 617 (citing
Mace
v.
Van Ru Credit Corp.,
109 F.3d 338, 344 (7th Cir. 1997) (“The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her own rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor.”).

49

See, e.g., Class Action Complaint, Bellwether Community Credit Union
v.
Chipotle Mexican Grill Inc.
, No.17-01102 (D.Colo. May 4, 2017), ECF No. 1 (asserting class action claims on behalf of financial institutions against Chipotle for data breach that exposed customers' names and debit and credit card numbers to hackers); Consumer Plaintiffs' Consolidated Class Action Complaint at 1, 5, In re: The Home Depot, Inc. Customer Data Breach Litig., No. 14-02583 (N.D. Ga. May 27, 2015), ECF No. 93 (complaint filed on behalf of putative class of “similarly situated banks, credit unions, and other financial institutions” that had “issued and owned payment cards compromised by the Home Depot data breach”); Memorandum and Order at 2, 14, In re: Target Corp. Customer Data Security Breach Litig., No. 14-2522 (D. Minn. Sept. 15, 2015), ECF No. 589 (granting certification to plaintiff class made up of banks, credit unions, and other financial institutions that had “issued payment cards such as credit and debit cards to consumers who, in turn, used those cards at Target stores during the period of the 2013 data breach,” noting that “given the number of financial institutions involved and the similarity of all class members' claims, Plaintiffs have established that the class action device is the superior method for resolving this dispute”);
In re TJX Cos. Retail Security Breach Litig.,
246 FRD. 389 (D. Mass. 2007) (denying class certification in putative class action by financial institutions).

Class Action Procedure Pursuant to Federal Rule 23

A class action can be filed and maintained under Federal Rule 23 in any case where there is a private right to bring a civil action in Federal court, unless otherwise prohibited by law.
50

Pursuant to Federal Rule 23(a), a class action must meet all of the following requirements: (1) A class of a size such that joinder of each member as an individual litigant is impracticable; (2) questions of law or fact common to the class; (3) a class representative whose claims or defenses are typical of those of the class; and (4) that the class representative will adequately represent those interests.
51

The first two prerequisites—numerosity and commonality—focus on the absent or represented class, while the latter two tests—typicality and adequacy—address the desired qualifications of the class representative. Pursuant to Federal Rule 23(b), a class action also must meet one of the following requirements: (1) Prosecution of separate actions risks either inconsistent adjudications that would establish incompatible standards of conduct for the defendant or would, as a practical matter, be dispositive of the interests of others; (2) defendants have acted or refused to act on grounds generally applicable to the class; or (3) common questions of law or fact predominate over any individual class member's questions, and a class action is superior to other methods of adjudication.

50
As one commenter noted, it is a procedural right not a substantive one.

51
Fed. R. Civ. P. 23(a)(1) through (4).

These and other requirements of Federal Rule 23 are designed to ensure

that class action lawsuits safeguard absent class members' due process rights because they may be bound by what happens in the case.
52

Further, the courts may protect the interests of absent class members through the exercise of their substantial supervisory authority over the quality of representation and specific aspects of the litigation.
53

In the typical Federal class action, an individual plaintiff (or sometimes several individual plaintiffs), represented by an attorney, files a lawsuit on behalf of that individual and others similarly situated against a defendant or defendants.
54

Those similarly situated individuals may be a small group (as few as 40 or even less) or as many as millions that are alleged to have suffered the same injury as the individual plaintiff. That individual plaintiff, typically referred to as a named or lead plaintiff, cannot properly proceed with a class action unless the court certifies that the case meets the requirements of Federal Rule 23, including the requirements of Federal Rule 23(a) and (b) discussed above. If the court does certify that the case can go forward as a class action, potential class members who do not opt out of the class are bound by the eventual outcome of the case.
55

If not certified, the case proceeds only to bind the named plaintiff.

52

See, e.g., Amchem Prod., Inc.,
521 U.S. at 619-21.

53

See
Fed. R. Civ. P. 23(e).

54
Federal Rule 23 also permits a class of defendants.

55
In some circumstances, absent class members are not given an opportunity to opt out.
E.g.,
Fed. R. Civ. P. 23(b)(1)(B) (providing for “limited fund” class actions when claims are made by numerous persons against a fund insufficient to satisfy all claims); Fed. R. Civ. P. 23(b)(2) (providing for class actions in which the plaintiffs are seeking primarily injunctive or corresponding declaratory relief).

A certified class case proceeds similarly to an individual case, except that the court has an additional responsibility in a class case, pursuant to Federal Rule 23 and the relevant case law, to actively supervise classes and class proceedings and to ensure that the lead plaintiff keeps absent class members informed.
56

Among its tasks, a court must review any attempts to settle or voluntarily dismiss the case on behalf of the class,
57

may reject any settlement agreement if it is not “fair, reasonable and adequate,”T
58

and must ensure that the payment of attorney's fees is “reasonable.”
59

The court also addresses objections from class members who seek a different outcome to the case (
e.g.,
lower attorney's fees or a better settlement). These requirements are designed to ensure that all parties to class litigation have their rights protected, including defendants and absent class members.

56
Fed. R. Civ. P. 23(g).

57

See, e.g.,
Fed. R. Civ. P. 23(e) (“The claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court's approval.”). This does not apply to settlements with named plaintiffs reached prior to the certification of a class.

58
Fed. R. Civ. P. 23(e)(2).

59
Fed. R. Civ. P. 23(h).

In addition to proceedings in Federal court, every State except Virginia and Mississippi has established procedures permitting individuals to file a class action; almost all of these States have adopted class action procedures analogous to Federal Rule 23.
60

60

See
Marcy Hogan Greer, “A Practitioner's Guide to Class Actions” at 142 (A.B.A. 2010). One State, Utah, authorizes providers of closed-end consumer credit to include in the credit contract a provision that would waive the consumer's right to participate in a class action. Utah Code 70C-3-14; “Mississippi does not permit class actions of any kind. When Mississippi adopted civil rules modeled on the Federal Rules of Civil Procedure, it expressly omitted Rule 23.” (footnote omitted).
Id.
at 1013.

Developments in Class Action Procedure Over Time

Since the 1966 amendments, Federal Rule 23 has generated a significant body of case law as well as significant controversy.
61

In response, Congress and the Advisory Committee on the Federal Rules of Civil Procedure (which has been delegated the authority to change Federal Rule 23 under the Rules Enabling Act) have made a series of targeted changes to Federal Rule 23 to calibrate the equities of class plaintiffs and defendants. Meanwhile, the courts have also addressed concerns about Federal Rule 23 in the course of interpreting the rule and determining its application in the context of particular types of cases.

61

See, e.g.,
David Marcus, “The History of the Modern Class Action, Part I: Sturm und Drang, 1953-1980,” 90 Wash. U. L. Rev. 587, at 610 (participants in the debate “quickly exhausted virtually every claim for and against an invigorated Rule 23”).

For example, Congress passed the Private Securities Litigation Reform Act (PSLRA) in 1995. Enacted partially in response to concerns about the costs to defendants of litigating class actions, the PSLRA reduced discovery burdens in the early stages of securities class actions.
62

In 2005, Congress again adjusted the class action rules when it adopted the Class Action Fairness Act (CAFA) in response to concerns about abuses of class action procedure in some State courts.
63

Among other things, CAFA expanded the subject matter jurisdiction of Federal courts to allow them to adjudicate most large class actions.
64

The Advisory Committee also periodically reviews and updates Federal Rule 23. In 1998, the Advisory Committee amended Federal Rule 23 to permit interlocutory appeals of class certification decisions, given the unique importance of the certification decision, which can dramatically change the dynamics of a class action case.
65

In 2003, the Advisory Committee amended Federal Rule 23 to require courts to define classes that they are certifying, increase the amount of scrutiny that courts must apply to class settlement proposals, and impose additional requirements on class counsel.
66

In 2015, the Advisory Committee further identified several issues that “warrant serious examination” and presented “conceptual sketches” of possible further amendments.
67

62
Private Securities Litigation Reform Act of 1995, Public Law 104-67, 109 Stat. 737 (1995).

63
Class Action Fairness Act of 2005, Public Law 109-2, 119 Stat. 4 (2005).

64
28 U.S.C. 1332(d), 1453, and 1711-15.

65
Fed. R. Civ. P. 23(f).
See also
Herbert B. Newberg, et al., “Newberg on Class Actions,” at § 7:41 (5th ed. Thomson Reuters 2016); 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).

66
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).”).

67

See, e.g.,
Rule 23 Subcomm. Rept., Advisory Committee on Rules of Civil Procedure, at 243-97 (2015),
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 Federal Rule 23. In the last five years, the Supreme Court has decided several major cases refining class action procedure. In
Wal-Mart Stores, Inc.
v.
Dukes,
the Court interpreted the commonality requirement of Federal Rule 23(a)(2), holding that in the absence of a common question among putative class members class certification is not appropriate.
68

In
Comcast Corp.
v.
Behrend,
the Court held that district courts must undertake a “rigorous analysis” of whether the damages model supporting a plaintiff's case is consistent with its theory of liability for purposes of satisfying the predominance requirements in Federal Rule 23(b)(3) and that that in the absence of such a model of individual damages may foreclose class certification.
69

In
Campbell-Ewald Co.
v.
Gomez,
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.
70

In
Tyson Foods, Inc.
v.
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.
71

Finally, in
Spokeo, Inc.
v.
Robins,
a class action alleging a violation of Federal law, the Court reiterated that to have standing in Federal court a plaintiff must allege an injury in fact—specifically, “`an invasion of a legally protected interest' that is `concrete and particularized' and `actual or imminent, not conjectural or hypothetical.'”
72

The case was remanded to the Ninth Circuit to determine whether the plaintiff had alleged an actual injury under the FCRA.
73

68
564 U.S. 338, 131 S. Ct. 2541 (2011);
see also
Klonoff,
supra
note 45, at 775.

69
133 S. Ct. 1426 (2013).

70

Campbell-Ewald Co.
v.
Gomez,
136 S. Ct. 663, 670 (2016).

71

Tyson Foods, Inc.
v.
Bouaphakeo,
136 S. Ct. 1036, 1046-48 (2016).

72

Spokeo, Inc.
v.
Robins,
135 S. Ct. 1892 (2015).

73

Id.
Following remand, the
Spokeo
case remains pending in the Ninth Circuit.
See Robins
v.
Spokeo Inc.,
No. 11-56843 (9th Cir).

C. Arbitration and Arbitration Agreements

As described above at the beginning of Part II, 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.
74

The typical arbitration agreement provides that the parties shall submit any disputes that may arise between them to arbitration. Arbitration agreements generally give each party to the contract two distinct rights. First, either side can file claims against the other in arbitration and obtain a decision from the arbitrator.
75

Second, with some exceptions, either side can use the arbitration agreement to require that a dispute that has been filed in court instead proceed in arbitration.
76

The typical agreement also specifies an organization called an arbitration administrator. Administrators, which may be for-profit or nonprofit organizations, facilitate the selection of an arbitrator to decide the dispute, provide for basic rules of procedure and operations support, and generally administer the arbitration.
77

Parties usually have very limited rights to appeal from a decision in arbitration to a court.
78

Most arbitration also provides for limited or streamlined discovery procedures as compared to those in many court proceedings.
79

74

See
“Arbitration,”
supra
note 7.

75

Id.

76
As described in the Study, however, most arbitration agreements in consumer financial contracts contain a “small claims court carve-out” that provides the parties with a contractual right to pursue a claim in small claims court. Study,
supra
note 3, section 2 at 33-34.

77

See id.
section 2 at 34-40.

78

See
9 U.S.C. 9.
See also Hall Street Assocs., L.L.C.
v.
Mattel, Inc.,
552 U.S. 576, 584 (2008) (holding that parties cannot expand the grounds for vacating arbitration awards in Federal court by contract); Preliminary Results,
infra
note 150, at 6 n.4.

79

See
Study,
supra
note 3, section 4 at 16-17.

History of Arbitration

The use of arbitration to resolve disputes between parties is not new.
80

In England, the historical roots of arbitration date to the medieval period, when merchants adopted specialized rules to resolve disputes between them.
81

English merchants began utilizing arbitration in large numbers during the nineteenth century.
82

However, English courts were hostile towards arbitration, limiting its use through doctrines that rendered certain types of arbitration agreements unenforceable.
83

Arbitration in the United States in the eighteenth and nineteenth centuries reflected both traditions: It was used primarily by merchants, and courts were hostile toward it.
84

Through the early 1920s, United States courts often refused to enforce arbitration agreements and awards.
85

80
The use of arbitration appears to date back at least as far as the Roman Empire.
See, e.g.,
Amy J. Schmitz, “Ending a Mud Bowl: Defining Arbitration's Finality Through Functional Analysis,” 37 Ga. L. Rev. 123, at 134-36 (2002); Derek Roebuck, “Roman Arbitration” (Holo. Books 2004).

81

See, e.g.,
Jeffrey W. Stempel, “Pitfalls of Public Policy: The Case of Arbitration Agreements,” 22 St. Mary's L. J. 259, at 269-70 (1990).

82

Id.

83

See, e.g.,
Schmitz,
supra
note 80, at 137-39.

84

See, e.g.,
Stempel,
supra
note 81, at 273-74.

85
David S. Clancy & Matthew M.K. Stein, “An Uninvited Guest: Class Arbitration and the Federal Arbitration Act's Legislative History,” 63(1) Bus. L. 55, at 58 and n.11 (2007) (
citing, inter alia, Haskell
v.
McClintic-Marshall Co.,
289 F. 405, 409 (9th Cir. 1923) (refusing to enforce an arbitration agreement because of a “settled rule of the common law that a general agreement to submit to arbitration did not oust the courts of jurisdiction, and that rule has been consistently adhered to by the Federal courts”);
Dickson Manufacturing Co.
v.
Am. Locomotive Co.,
119 F. 488, 490 (C.C.M.D. Pa. 1902) (refusing to enforce an arbitration agreement where plaintiff revoked its consent to arbitration).

In 1920, New York enacted the first modern arbitration statute in the United States, which strictly limited courts' power to undermine arbitration decisions and arbitration agreements.
86

Under that law, if one party to an arbitration agreement refused to proceed to arbitration, the statute permitted the other party to seek a remedy in State court to enforce the arbitration agreement.
87

In 1925, Congress passed the United States Arbitration Act, which was based on the New York arbitration law and later became known as the Federal Arbitration Act (FAA).
88

The FAA remains in force today. Among other things, the FAA makes agreements to arbitrate “valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”
89

86
43 N.Y. Stat. 833 (1925).

87

Id.

88
9 U.S.C. 1,
et seq.
The FAA was codified in 1947. Public Law 282, 61 Stat. 669 (July 30, 1947). James E. Berger & Charlene Sun, “The Evolution of Judicial Review Under the Federal Arbitration Act,” 5 N.Y.U. J. L. & Bus. 745, at 754 n.45 (2009).

89
9 U.S.C. 2.

Expansion of Consumer Arbitration and Arbitration Agreements

From the passage of the FAA through the 1970s, arbitration continued to be used in commercial disputes between companies.
90

Beginning in the 1980s, however, companies began to use arbitration agreements in form contracts with consumers, investors, employees, and franchisees that were not the result of individually negotiated terms.
91

By the 1990s, this trend began to spread more broadly within the consumer financial services industry.
92

90

See, e.g.,
Soia Mentschikoff, “Commercial Arbitration,” 61 Colum. L. Rev. 846, at 850 (1961) (noting that, as of 1950, nearly one-third of trade associations used a mechanism like the American Arbitration Association as a means of dispute resolution between trade association members, and that over one-third of other trade associations saw members make their own individual arrangements for arbitrations);
see also id.
at 858 (noting that AAA heard about 240 commercial arbitrations a year from 1947 to 1950, comparable to the volume of like cases before the U.S. District Court of the Southern District of New York in the same time period). Arbitration was also used in the labor context where unions had bargained with employers to create specialized dispute resolution mechanisms pursuant to the Labor Management Relations Act. 29 U.S.C. 401-531.

91
Stephen J. Ware, “Arbitration Clauses, Jury-Waiver Clauses and Other Contractual Waivers of Constitutional Rights,” 67 L. & Contemp. Probs. 179 (2004).

92

See
Sallie Hofmeister, “Bank of America is Upheld on Consumer Arbitration,” N.Y. Times, Aug. 20, 1994 (“`The class action cases is where the real money will be saved [by arbitration agreements],' Peter Magnani, a spokesman for the bank, said.”); John P. Roberts, “Mandatory Arbitration by Financial Institutions,” 50 Consumer Fin. L. Q. Rep. 365, at 367 (1996) (identifying an anonymous bank “ABC” as having adopted arbitration provisions in its contracts for consumer credit cards, deposit accounts, and safety deposit boxes); Hossam M. Fahmy, “Arbitration: Wiping Out Consumers Rights?,” 64 Tex. Bus. J. 917, at 917 (2001) (citing Barry Meier, “In Fine Print, Customers Lose Ability to Sue,” N.Y. Times, Mar.

10, 1997, at A1 (noting in 2001 that “[t]he use of consumer arbitration expanded eight years ago when Bank of America initiated its current policy,” when “notices of the new arbitration requirements were sent along with monthly statements to 12 million customers, encouraging thousands of other companies to follow the same policy”).

One notable feature of these agreements is that they could be used to block class action litigation and often class arbitration as well.
93

The agreements could block class actions filed in court because when sued in a class action, companies could use the arbitration agreement to dismiss or stay the class action in favor of arbitration. Yet the agreements often prohibited class arbitration as well, rendering plaintiffs unable to pursue class claims in either litigation or arbitration.
94

More recently, some consumer financial providers themselves have disclosed in their filings with the SEC that they rely on arbitration agreements for the express purpose of shielding themselves from class action liability.
95

93

See, e.g.,
Alan S. Kaplinsky & Mark J. Levin, “Excuse Me, But Who's the Predator? Banks Can Use Arbitration Clauses as a Defense,” 7 Bus. L. Today 24 (1998) (“Lenders that have not yet implemented arbitration programs should promptly consider doing so, since each day that passes brings with it the risk of additional multimillion-dollar class action lawsuits that might have been avoided had arbitration procedures been in place.”);
see also
Bennet S. Koren, “Our Mini Theme: Class Actions,” 7 Bus. L. Today 18 (1998) (industry attorney recommends adopting arbitration agreements because “[t]he absence of a class remedy ensures that there will be no formal notification and most claims will therefore remain unasserted.”).

94
Even if a pre-dispute arbitration agreement does not prohibit class arbitration, an arbitrator may not permit arbitration to go forward on a class basis unless the arbitration agreement itself shows the parties agreed to do so.
See Stolt-Nielsen S.A.
v.
AnimalFeeds Int'l Corp.,
559 U.S. 662, 684 (2010) (“[A] party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party
agreed
to do so.”) (emphasis in original). Both the AAA and JAMS class arbitration procedures reflect the law; both require an initial determination as to whether the arbitration agreement at issue provides for class arbitration before a putative class arbitration can move forward.
See
AAA, “Supplementary Rules for Class Arbitrations,” at Rule 3 (effective Oct. 8, 2003) (“Upon appointment, the arbitrator shall determine as a threshold matter, in a reasoned, partial final award on the construction of the arbitration clause, whether the applicable arbitration clause permits the arbitration to proceed on behalf of or against a class (the “Clause Construction Award.”); JAMS, “Class Action Procedures,” at Rule 2: Construction of the Arbitration Clause (effective May 1, 2009) (“[O]nce appointed, the Arbitrator, following the law applicable to the validity of the arbitration clause as a whole, or the validity of any of its terms, or any court order applicable to the matter, shall determine as a threshold matter whether the arbitration can proceed on behalf of or against a class.”).

95

See, e.g.,
Discover Financial Services, Annual Report (Form 10-K) (Feb. 25, 2015) at 43 (“[W]e have historically relied on our arbitration clause in agreements with customers to limit our exposure to consumer class action litigation . . .”); Synchrony Financial, Annual Report (Form 10-K) (Feb. 23, 2015) at 45 (“[H]istorically the arbitration provision in our customer agreements generally has limited our exposure to consumer class action litigation. . . .”).

Since the early 1990s, the use of arbitration agreements in consumer financial contracts has become widespread, as shown by Section 2 of the Study (which is discussed in detail in Part III.D below). By the early 2000s, a few consumer financial companies had become heavy users of arbitration proceedings to obtain debt collection judgments against consumers. For example, in 2006 alone, the National Arbitration Forum (NAF) administered 214,000 arbitrations, most of which were consumer debt collection proceedings brought by companies.
96

96
Carrick Mollenkamp, et al., “Turmoil in Arbitration Empire Upends Credit-Card Disputes,” Wall St. J., Oct. 16, 2009.
See also
Public Citizen, “The Arbitration Trap: How Credit Card Companies Ensnare Consumers,” (2007),
available athttps://www.citizen.org/our-work/access-justice/arbitration-trap.

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 NAF, which was the most widely used arbitration administrator for debt collection.
97

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.
98

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.
99

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.
100

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.
101

97

See
Mollenkamp,
supra
note 96. In addition to cases relating to debt collection arbitrations, NAF was later added as a defendant to the
Ross
v.
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., No. 1409 (S.D.N.Y. Dec. 13, 2011).

98

California
v.
National Arbitration Forum, Inc.,
No. 473-569 (S.F. Sup. Ct. Mar. 2009).

99

See
Complaint at 2,
State of Minnesota
v.
National Arbitration Forum, Inc.,
No. 09-18550 (4th Jud. Dist. Minn. July 14, 2009),
available at https://www.nclc.org/images/pdf/unreported/naf_complaint.pdf.

100
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. Press Release, City Attorney Dennis Herrera, “Herrera Secures $5 Million Settlement, Consumer Safeguards Against BofA Credit Card Subsidiary,” (Aug. 22, 2011),
available at

https://www.sfcityattorney.org/2011/08/22/herrera-secures-5-million-settlement-consumer-safeguards-against-bofa-credit-card-subsidiary/.

101
Memorandum and Order, In re National Arbitration Forum Trade Practices Litig., No. 10-02122 (D. Minn. Aug. 8, 2011), ECF 120.

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.
102

Specifically, shortly after the NAF settlement, the AAA offered testimony to Congress that—independent of the NAF settlement—AAA “had independently reviewed areas of the process and concluded that it had some weaknesses” in its own debt collection arbitration program, and noted that generally that “areas needing attention . . . include[d] consumer notification, arbitrator neutrality, pleading and evidentiary standards, respondents' defenses and counterclaims, and arbitrator training and recruitment.”
103

102

See
Press Release, AAA, “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
AAA, “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. 81 FR 32830, 32836 n.97 (May 24, 2016).

103

See
Press Release, AAA,
supra
note 102.

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,
104

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.
105

Initially, these challenges yielded conflicting results. Some courts held that class arbitration waivers were not unconscionable.
106

Other courts held that such waivers were unenforceable on unconscionability grounds.
107

Some of these decisions also held that the FAA did not preempt application of a State's unconscionability doctrine.
108

104
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.”).

105

See, e.g.,
Opening Brief on the Merits at 5,
Discover Bank
v.
Superior Court
, No. S113725, 2003 WL 26111906, (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.”).

106

See, e.g., Strand
v.
U.S. Bank N.A.,
693 NW.2d 918 (N.D. 2005);
Edelist
v.
MBNA America Bank,
790 A.2d 1249 (Sup. Ct. of Del., New Castle Cty. 2001).

107

See, e.g., Brewer
v.
Missouri Title Loans, Inc.,
323 SW.3d 18 (Mo. 2010) (en banc);
Feeney
v.
Dell, Inc.,
908 NE.2d 753 (Mass. 2009);
Fiser
v.
Dell Computer Corp.,
188 P.3d 1215 (N.M. 2008);
Tillman
v.
Commercial Credit Loans, Inc.,
655 SE.2d 362 (N.C. 2008);
Dale
v.
Comcast Corp.,
498 F.3d 1216 (11th Cir. 2007) (holding that class action ban in arbitration agreement substantively unconscionable under Georgia law);
Scott
v.
Cingular Wireless,
161 P.3d 1000 (Wash. 2007) (en banc);
Kinkel
v.
Cingular Wireless LLC,
857 NE.2d 250 (Ill. 2006);
Muhammad
v.
Cnty. Bank of Rehoboth Beach, Del.,
912 A.2d 88 (N.J. 2006);
Discover Bank
v.
Superior Court,
113 P.3d 1100 (Cal. 2005).

108

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 a particular State's laws. Then, in 2011, the Supreme Court held in
AT&T Mobility
v.
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.”
109

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).
110

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.
111

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.
112

109

AT&T Mobility LLC
v.
Concepcion,
563 U.S. 333, 344 (2011).

110

Id.
at 348-51.

111

See
Robert Buchanan Jr., “The U.S. Supreme Court's Landmark Decision in AT&T Mobility v. Concepcion: One Year Later,” Bloomberg Legal News, 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.

112

American Express Co.
v.
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.
113

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.
114

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.
115

In addition, since 1976, the regulations of the Commodity Futures Trading Commission (CFTC) implementing the Commodity Exchange Act (CEA) have required that arbitration agreements in commodities contracts be voluntary.
116

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.
117

113

See
FINRA, “Arbitration and Mediation,”
https://www.finra.org/arbitration-and-mediation
(last visited Feb. 8, 2017).

114
FINRA, “Class Action Claims,” at Rule 12204(d). For individual disputes between brokers and customers, FINRA requires individual arbitration.

115

See
Self-Regulatory Organizations; National Ass'n of Securities Dealers, Inc.; Order Approving Proposed Rule Change Relating to the Exclusion of Class Actions from Arbitration Proceedings, Exchange Act Release No. 31371, 1992 WL 324491, (Oct. 28, 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.

116
Arbitration or Other Dispute Settlement Procedures, 41 FR 42942, 42946 (Sept. 29, 1976); 17 CFR 166.5(b).

117

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.
118

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.”
119

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.
120

118
16 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
Jonathan D. Grossberg, “The Magnuson-Moss Warranty Act, the Federal Arbitration Act, and the Future of Consumer Protection,” 93 Cornell L. Rev. 659, at 667 (2008). After 1999, two appellate courts questioned whether the MMWA was intended to reach arbitration agreements.
See
Final Action Concerning Review of the Interpretations of Magnuson-Moss Warranty Act, 80 FR 42710, 42719 and nn.115-116 (July 20, 2015) (citing
Davis
v.
Southern Energy Homes, Inc.,
305 F.3d 1268 (11th Cir. 2002);
Walton
v.
Rose Mobile Homes, LLC,
298 F.3d 470 (5th Cir. 2002).

119

See
80 FR 42710, 42719 (July 20, 2015).

120

See id.

More recently, the Department of Labor finalized a rule addressing conflicts of interest in retirement advice.
121

To be eligible for an exemption from part of that rule, a covered entity cannot employ an arbitration agreement that can be used to block a class action, although agreements mandating arbitration of individual disputes will continue to be permitted.
122

Other agencies are reevaluating their arbitration initiatives. The Department of Education recently sought to postpone implementation of a rule that was intended to limit the impact of arbitration agreements in certain college enrollment agreements by addressing the use of arbitration agreements to bar students from bringing group claims.
123

The Centers for Medicare and Medicaid Services (CMS) have proposed revisions to a rule finalized in late 2016 regarding the requirements that long-term health care facilities must meet to participate in the Medicare and Medicaid programs.
124

121
Best Interest Contract Exemption, 81 FR 21002 (Apr. 8, 2016).

122
81 FR 21002, 21020 (Apr. 8, 2016).

123

See
Student Assistance General Provisions, 82 FR 27621 (June 16, 2017);
see also
Student Assistance General Provisions, 81 FR 75926, 76021-31 (Nov. 1, 2016).

124
The recent proposal seeks to amend the 2016 rule's required terms for the use of arbitration agreements between long-term care facilities and residents of those facilities. 82 FR 26649 (June 5, 2017);
see also
Centers for Medicare & Medicaid Services, Medicare and Medicaid Programs, Reform of Requirements for Long-Term Care Facilities, 81 FR 68688 (Oct. 4, 2016).

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.
125

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.
126

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.”
127

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.
128

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.
129

125
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).

126
John Warner National Defense Authorization Act for Fiscal Year 2007, Public Law 109-364, 120 Stat. 2083 (2006).

127
Limitations on Terms of Consumer Credit Extended to Service Members and Dependents, 72 FR 50580 (Aug. 31, 2007) (codified at 32 CFR 232).

128

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 to arbitrate certain kinds of employment claims.
See
Department of Defense Appropriations Act of 2010, Public Law 111-118, 123 Stat. 3454 (2010), section 8116.

129
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.
130

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.
131

Section 922 of the Act invalidated the use of arbitration agreements in connection with certain whistleblower proceedings.
132

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.
133

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.

130

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).

131
Dodd-Frank section 921(b).

132
Dodd-Frank section 922(c)(2).

133
Dodd-Frank section 1028(a).

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.
134

However, States are constrained in their ability to regulate arbitration because the FAA preempts conflicting State law.
135

134
Cal. Civ. Proc. Code sec. 1281.96 (amended effective Jan. 1, 2015); DC Code sec. 16-4430; Md. Comm. L. Code, secs. 14-3901-05; 10 M.R.S.A. sec. 1394 (Maine).

135

See Doctor's Assocs., Inc.
v.
Casarotto,
517 U.S. 681, 687 (1996) (“Courts may not, however, invalidate arbitration agreements under state laws applicable only to arbitration provisions.”);
Perry
v.
Thomas,
482 U.S. 483, 492 n.9 (1987) (“[S]tate law, whether of legislative or judicial origin, is applicable
if
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.
136

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.
137

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.”
138

A second entity, JAMS, administers consumer financial arbitrations pursuant to the JAMS Streamlined Arbitration Rules & Procedures
139

and the JAMS Consumer Minimum Standards.
140

These administrators' procedures for arbitration both 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.

136

See infra
Part III.D.

137
AAA, “Consumer Arbitration Rules,” (effective Sept. 1, 2014),
available at

https://adr.org/sites/default/files/Consumer%20Rules.pdf
.

138
AAA, “Consumer Due Process Protocol Statement of Principles,” at Principle 1,
available at

http://info.adr.org/consumer-arbitration/
. 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.

139
JAMS, “Streamline 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.
at Rule 1(a).

140

See
JAMS, “JAMS Policy on Consumer Arbitrations Pursuant to Pre-Dispute Clauses: Minimum Standards on Procedural Fairness,” (effective July 15, 2009),
available at

https://www.jamsadr.com/consumer-minimum-standards/
(setting forth 10 standards). This policy explains that “JAMS will administer arbitrations pursuant to mandatory pre-dispute arbitration clauses between companies and consumers1 only if the contract arbitration clause and specified applicable rules comply with the following minimum standards of fairness.”
Id.

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.
141

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.
142

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.
143

141

See
AAA, “Class Arbitration Case Docket,”
https://www.adr.org/casedockets
(last visited Feb. 9, 2017).

142
Study,
supra
note 3, 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.

143
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.” Brief of the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Plaintiff-Appellants at 9,
Marriott Ownership Resorts, Inc
. v.
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).
144

144
Study,
supra
note 3.

This Part describes the process the Bureau used to carry out the Study and summarizes the Study's results. Where relevant, this Part then sets forth comments received in response to the proposal that were specific to the Study and its results. The Bureau generally addresses the outcome of its Study, including analyses of the results of the Study, in Part VI, Findings, below. In some instances, the Bureau has elected to address issues related to both the Study and the Findings in Part VI.

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.
145

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.

145
Arbitration Study RFI,
supra
note 16.

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 incorporated an extensive analysis of consumer financial litigation—both individual litigation and class actions.
146

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.
147

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 included a “difference-in-differences” regression analysis using a representative random sample of the Bureau's Credit Card Database, to look for price impacts associated with changes relating to arbitration agreements for credit cards, an analysis that had never before been conducted.
148

146

See generally
Study,
supra
note 3, sections 6 and 8.

147

Id.
at section 9.

148

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.
149

149

See
Myriam Gilles, “The End of Doctrine: Private Arbitration Public Law and the Anti-Lawsuit Movement,” (Benjamin N. Cardozo Sch. of L. Faculty Res. Paper No. 436, 2014) (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 Results

In December 2013, the Bureau issued a 168-page report summarizing its preliminary results on a number of topics (Preliminary Results).
150

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.
151

150
Bureau of Consumer Fin. Prot., “Arbitration Study Preliminary Results,” (Dec. 12, 2013),
available at

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

151

Id.
at 129-131.

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 advocates, 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.
152

Pursuant to the Paperwork Reduction Act (PRA), 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.
153

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.

152

Id.
at 129.

153
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.
154

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.
155

154
Study,
supra
note 3, section 5 at 19-68.

155

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 in Federal and selected State courts; 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 filings in State small claims courts 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.
156

The Study also included 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, summarize the main results of each section, and then summarizes and addresses criticisms of the Study results.
157

156
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.

157
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 3, 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.

Before doing so, one preliminary observation is in order. With rare exception, the commenters did not criticize the methodologies the Bureau used to assemble the various data sets used in the Study or the analyses the Bureau conducted of these data. Rather, to the extent commenters addressed the Study itself—as distinguished from the interpretation or significance of the Study's findings—in the main the commenters suggested that the Bureau should have engaged in additional analyses.

As explained in more detail below, in many instances the analyses that commenters suggested were not feasible given the limitations on the data available to the Bureau. For example, as discussed below, the Bureau did not have a feasible way of studying the actual costs that financial service providers incur in defending class actions or studying the outcomes of arbitration or individual litigation cases that were settled (or resolved in a manner consistent with a settlement) unless the case records reflected the settlement terms. In other instances, the analyses the commenters suggested—such as studying the satisfaction of the small number of consumers who file arbitration cases—were not, in the Bureau's judgment, relevant to determining whether limitations on arbitration agreements are in the public interest and for the protection of consumers. And, in other instances, resource limitations required the Bureau to deploy random sampling techniques or to limit the number of years under study while still obtaining representative data.

Beyond that, it is worth noting that it is the case with any research—even research as extensive and painstaking as the Study—that it is always possible, ex post, to think of additional questions that could have been asked, additional data that could have been procured, or additional analyses that could have been performed. The Bureau does not interpret section 1028's direction to study the use of arbitration agreements in consumer finance to require the Bureau to research every conceivably relevant question or to exhaust every conceivable data source as a precondition to exercising the regulatory authority contained in that section. As discussed in substantial detail below in Part VI, the Bureau believes that its extensive research provides ample evidence that the restrictions on the use of arbitration agreements contained in this Rule are in the public interest and for the protection of consumers.

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

Section 2 of the Study addressed 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.
158

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.
159

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.

158

Id.
section 2 at 3.

159

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.
160

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-sized 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.

160
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 GPR 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.
161

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.
162

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.
163

For the mobile wireless market, the Bureau reviewed the wireless contracts of the eight largest facilities-based providers of mobile wireless services
164

which also govern third-party billing services.
165

161
Study,
supra
note 3, section 2 at 18.

162

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.

163

Id.
section 2 at 24.

164
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
.

165
Study,
supra
note 3, 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.

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.
166

In the credit card market, the Study found that small bank issuers were less likely to include arbitration agreements than large bank issuers.
167

Likewise, only 3.3 percent of credit unions in the credit card sample used arbitration agreements.
168

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.
169

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).
170

In contrast, only 7.1 percent of small-and mid-sized banks and 8.2 percent of credit unions used arbitration agreements.
171

In the GPR 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.
172

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.
173

166

Id.
section 1 at 9.

167

Id.
section 2 at 10.

168

Id.

169

Id.
As the Study noted, the
Ross
settlement—a 2009 settlement of an antitrust case in which four of the 10 largest credit card issuers agreed to remove their arbitration agreements—likely impacted 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.

170

Id.
section 2 at 14.

171

Id.

172

Id.
section 2 at 19, 22.

173

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.
174

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.
175

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.
176

174

Id.
section 2 at 30.

175

Id.
section 2 at 38.

176

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 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.
177

177

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.
178

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.
179

178

Id.
section 2 at 44-47.

179

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.
180

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.
181

180

Id.
section 2 at 33-34.

181

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.
182

Most arbitration agreements reviewed in the Study contained provisions that had the effect of capping consumers' upfront 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, with approximately one-fifth of the arbitration agreements in credit card, checking account, and storefront payday loan markets permitting shifting company fees to consumers.
183

The Study also found that only a small number of agreements representing negligible shares of the relevant markets directed or permitted arbitrators to award attorney's fees to prevailing companies.
184

A significant share of arbitration agreements across almost all markets did not address attorney's fees.
185

182

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.

183

Id.
section 2 at 62-66.

184

Id.
section 2 at 67.

185

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.

Aside from costs more generally, 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 attorney's fees to the consumer.
186

However, as the Study pointed out, the AAA's consumer arbitration fee schedule, which became effective March 1, 2013, restricts such reallocation.
187

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.
188

186

Id.
section 2 at 62-66.

187

Id.
section 2 at 61-62.

188

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.
189

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.
190

The Study found that this language was often capitalized or in boldfaced type.
191

189

Id.
section 2 at 72.

190

Id.
section 2 at 72-79.

191

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; GPR 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.
192

192

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, one-third of GPR 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.
193

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.
194

No storefront payday loan, private student loan, or mobile wireless contracts in the sample without arbitration agreements had such time limits.
195

193

Id.
section 2 at 50.

194

Id.
section 2 at 51.

195

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.
196

196

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).

Comments received regarding the scope of Section 2 are addressed in Part III.E below.

2. 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.
197

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.
198

197
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.

198
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 the respondents' 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.
199

Almost the same proportion of respondents stated that they would simply pay for the improperly assessed fee (1.7 percent).
200

A majority of respondents (57.2 percent) said that they would cancel their cards.
201

199

Id.
section 3 at 18.

200

Id.

201

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.
202

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.
203

202

Id.
section 3 at 15.

203

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 lacked 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.
204

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.”
205

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.”
206

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.
207

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).
208

204

Id.
section 3 at 18.

205

Id.
section 3 at 18-20.

206

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 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 cons

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2017-14225. Public record. Not legal advice.