Aug 18, 2016 - 9:00am

CFPB’s Arbitration Rule: By the Numbers


Former Executive Director, Center for Capital Markets Competitiveness

Senior Vice President of legal reform policy, Institute for Legal Reform

This summer, the Consumer Financial Protection Bureau (CFPB) proposed a regulation that would pad the wallets of trial lawyers by foreclosing consumers’ access to subsidized arbitration and forcing them into class action lawsuits. That outcome would be very bad for consumers.  But what makes it worse is that the CFPB’s proposal ignores the agency’s very own research on arbitration. 

Take a close look at what the bureau’s own 2015 Arbitration Study says about class action and arbitration:          

42,000x more money

According to the CFPB, trial lawyers make about 42,000 times more than the average consumer recovery in a class action lawsuit.
 

Zero Benefit to Class Members

According to the CFPB, almost 90% of cases filed as class action lawsuits provided zero benefit to class members
 

$32

According to the CFPB, in the small fraction of class actions that do settle on a class-wide basis, the claims rate is only 4%. That means that only a very tiny fraction of consumers in these cases get paid—and when they do, the average recovery is $32.
 

17,000% 

According to the CFPB, the average consumer award in the arbitrations the CFPB studied was about 17,000% better than the average class action award.
 

Unfortunately for the CFPB, the numbers just don’t add up in favor of a proposal that would effectively replace consumer arbitration with our broken class action system. The CFPB’s own arbitration study erodes any rational basis the CFPB might claim to pursue this rulemaking further. Instead of lining the pockets of class action trial lawyers, the CFPB should go back to the drawing board for the benefit of the consumers it is statutorily required to protect.

SOURCES

Stat Box 1: Here is a link to the CFPB’s arbitration study. Go to page 357 of the pdf and look at table 13. Divide the amount of attorneys’ fees ($338,115,803) by the number of cases (251), and you learn that for the cases the CFPB studied, lawyers got an average of about $1.35 million per case. 

Now click here, on the CFPB’s proposed rule.  Go to page 73.  Buried in footnote 305, you will see the CFPB acknowledges that the consumer’s average recovery in those 251 cases was about $32.

$1.35 million divided by $32 = 42,188. For every dollar the consumer receives, the lawyers make about 42,000 times more.

Stat Box 2: Look at page 252 of the CFPB’s arbitration study. Out of the 562 class complaints the CFPB studied, only 12.3% of those cases settled on a class-wide basis (or about 14%, if you include the 14 the CFPB found after the close of its study period).  That means that almost nine in ten cases filed as class action litigation provided no class-wide relief.

Stat Box 3: Check out page 326 of the arbitration study pdf, where the CFPB finds that, for the majority of settlements (those that do not include automatic cash distribution), the “weighted average claims rate was 4%,” meaning only 1 in 25 consumers received any monetary relief whatsoever. 

The CFPB’s data about the number of consumers “eligible” for relief is a red herring.  If consumers are eligible for relief but don’t take the steps to obtain it (perhaps because the average recovery amount is so small), what is it really worth?

Stat Box 4: Take a look at page 170 of the arbitration study pdf.  The average award in the disputes in which arbitrators provided some kind of relief in favor of consumers’ affirmative claims was around $5,400.  Divide that number by the $32 the CFPB says consumers get in class action, and you find that consumers do about 17,000% better in arbitration that in class action.

 
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About the Authors

About the Author

Former Executive Director, Center for Capital Markets Competitiveness

Travis Norton is the former Executive Director, Center for Capital Markets Competitiveness.

About the Author

Senior Vice President of legal reform policy, Institute for Legal Reform