Monday, November 24, 2014
Friend of the blog Jeff Sovern, and his co-authors are creating quite a stir with their article that has been topping the charts on SSRN, 'Whimsy Little Contracts' with Unexpected Consequences: An Empirical Analysis of Consumer Understanding of Arbitration Agreements.
You can follow the discussion in the blogosphere at these sites:
Alan S. Kaplinsky and Mark J. Levin start things off on Ballard Spahr's CFPB Monitor. They make two main points. First, arbitration language is generally quite easy to understand. Second, it does not matter whether or not consumers know what they are getting into when they enter into a credit card agreement with an arbitartion clause if consumer arbitration is actually good for consumers.
Jeff Sovern responds on the Consumer Law and Policy blog to a number of the CFPB Monitor points, but on the main question of whether or not consumers benefit from arbitration, he concedes that the study did not attempt to answer that question Rather, the point is that the basis for such arbitration is consent, and his study shows that consumers do not give meaningful consent to arbitration.
Levin and Kaplinsky don’t actually address the core problem we address in our article–that citizens are being unwittingly and unwillingly forced to give up important (and constitutionally guaranteed) procedural rights. Their point–and it is the point arbitration advocates almost invariably make–is that arbitration can be better for consumers than litigation. That may very well be true, at least some of the time. (See my post on the benefits of limited consumer arbitration here.) But it doesn’t answer the right question.
Kaplinsky and Levin have filed their response on Ballard Spahr's CFPB Monitor. They reiterate their argument, citing numerous court opinions, that arbitration clauses can be readily understood by consumers. They remind readers that the purpose of the Federal Arbitration Act was to prevent courts from treating arbitration agreements differently from other agreements. An arbitration clause in an otherwise enforceable agreement ought to be enforceable just as any other term in the agreemnt would be.
My questions in these debates are always the same. If arbitration clasues are potentially beneficial to consumers, why make them mandatory? Provide for arbitration as an option and make clear that if a consumer chooses to arbitrate, she cannot also sue. In addition, what of class action waivers, which now often accompany arbitration provisions? Kaplinsky and Levin claim that some studies show that plaintiffs do better off in individual arbitrations than they do in class actions, but I don't know how studies could show that since (so the argument goes), in some cases plaintiffs won't file claims at all unless they can do so through class actions.