Earlier this summer, the CFPB (that is, the Consumer Financial Protection Bureau, the federal agency charged with protecting the monetary interests of consumers) proposed a new financial regulation that would directly undermine its own statutorily-defined mission. The proposed rule would bar consumer access to subsidized arbitration, effectively forcing consumers into a broken class-action system whose primary beneficiaries are plaintiffs’ attorneys. In an even more bizarre twist, the CFPB’s proposal appears to be an incompatible response to its very own research on arbitration.
Travis Norton, executive director for the Center for Capital Markets Competitiveness, and Matt Webb, senior vice president of legal reform policy for the U.S. Chamber Institute for Legal Reform (ILR), make that case in this compelling post from the U.S. Chamber of Commerce website. The co-authors dive deep into the CFPB’s own 2015 report to Congress to reveal that the data simply does not add up to preventing consumers from seeking arbitration. For example, out of 251 cases the CFPB studied, attorneys received an average of $1.35 million per case, while consumers only recovered about $32 on average (that’s 32 single dollars). That means plaintiffs’ attorneys made about 42,000 times more in fees than the amount of damages their clients’ received. Moreover, the study reveals class-action settlements simply are not very effective at providing relief to consumers; out of 562 class complaints, nearly 9 in 10 cases failed to provide class-wide relief. And for the majority of settlements only about 1 in 25 consumers received any monetary relief at all.
But the most glaring stat that reveals the contradictory nature of the CFPB’s arbitration proposal is one that compares the success of class-action settlements against arbitration in providing relief to consumers. Norton and Webb explain that with the average consumer award in arbitration disputes reaching about $5,400, consumers make out about 17,000 percent better in arbitration than in class-action settlements. The NC Chamber shares the U.S. Chamber of Commerce’s concern over this counterproductive proposal. We have encouraged federal leaders to oppose its implementation, and we will continue to do so. But if any good can come from it, it is that it serves as a reminder of the importance of promoting a strong legal climate for business here in our state in order to form a safeguard against the uncertainty that often prevails at the federal level.
Fortunately, thanks to the success of recent legal reforms supported by the NC Chamber and other pro-growth organizations in North Carolina, our state’s legal climate is as competitive as ever. In the ILR’s most recent Lawsuit Climate Survey, released in 2015, North Carolina jumped from the 20th best to the 7th best legal climate for business thanks to those strong reform measures. The NC Chamber believes that a balanced state legal climate that protects public interests while deterring costly, frivolous litigation is absolutely essential to our future competitiveness. We are fully committed to continuing to fight for the improvements needed to keep striking that balance.
Gary J. Salamido
Vice President, Government Affairs
North Carolina Chamber