Consumer Arbitration Symposium, at Loyola Chicago Consumer Law Review, March, 17, 2017

1. Stephen J. Ware
Professor of Law
University of Kansas

3. Partisan divide on adhesive arbitration
evident throughout:
1. SCOTUS
2. Congress
3. Executive agencies

4. Stephen J. Ware, The Politics of Arbitration
Law and Centrist Proposals for Reform, 53
HARVARD J. ON LEGISLATION 711 (2016).
http://papers.ssrn.com/sol3/papers.cfm?abstr
act_id=2799429

5. The partisan divide over adhesive arbitration
is basically about the level of consent the
law should require before enforcing an
arbitration agreement against an individual.
Progressives generally would require higher
levels of consent than arbitration law
currently requires, while conservatives
generally defend current arbitration law’s
low standards of consent.

6. “forced arbitration”
“mandatory arbitration”
Does this describe arbitration
arising out of consumers’ and
employees’ form contracts?

8. “forced arbitration”
“mandatory arbitration”
Does this describe arbitration
arising out of consumers’ and
employees’ form contracts?

9. Using the phrase “mandatory arbitration” to
describe arbitration resulting from pre-dispute
contracts “is extremely confusing language
because it ignores altogether the consensual
element in contracts” and “its usage resolves
linguistically the issues of the reality of
consent and the effect to be given to consent
by fiat, rather than by analysis revealing the
nature of the issues”. Ian R. MacNeil, Richard
Speidel & Tom Stipanowich, Federal Arbitration
Law § 2:36 n.5.

10. Consumer form
contracts
Federal
Insecticide Act
“contractual
arbitration” or
“adhesive
arbitration”
“mandatory
arbitration”

11. Consumer form
contracts
Federal
Insecticide Act
“contractual
arbitration” or
“adhesive
arbitration”
“mandatory
arbitration”
mortgages

12. Arbitration clauses in consumers’
and employees’ form contracts
raise many of the same issues
raised by other clauses in
consumers’ and employees’ form
contracts.

13. Our law enforces most, but not
all, terms in consumers’ and
employees’ form contracts.
When should arbitration clauses
in such contracts be enforced?

14. Federal Arbitration Act § 2
“A written provision…to settle by
arbitration a controversy thereafter
arising out of such contract or
transaction…shall be valid,
irrevocable, and enforceable, save
upon such grounds as exist at law
or in equity for the revocation of
any contract.”

15. Finer brush (Federal Arbitration Act § 2):
enforceable “save upon such grounds as
exist at law or in equity for the
revocation of any contract.”
Broad brush (proposed Arb. Fairness
Act): “no predispute arbitration
agreement shall be valid or enforceable if
it requires arbitration of an employment
dispute, consumer dispute,”

17. Compare arbitration and litigation of comparable
cases.
1. Process of reaching outcome; and
2. Outcome itself.
Both 1 and 2 can be assessed in terms of quality and cost.
Those assessments may not be the same for each party.

18. In comparing arbitration with litigation, are we
comparing it to an individual action or class action?
These two types of cases ought, IMHO, to be analyzed
separately.

19. Class claims may be more important
CFPB “preliminarily finds that the relatively small
number of arbitration, small claims, and Federal court
cases reflects the insufficiency of individual dispute
resolution mechanisms alone to enforce effectively the
law …. Some stakeholders claim that the low total
volume of individual claims, in litigation or
arbitration, found by the Study is attributable not to
inherent deficiencies in the individual dispute resolution
systems but rather to the success of informal dispute
resolution mechanisms in resolving consumers’
complaints.”
CFPB-2016-0020, at 99
http://files.consumerfinance.gov/f/documents/CFPB_Arbitration_Agreements_Notice_of_
Proposed_Rulemaking.pdf

20. Current law enforces adhesive arbitration
agreements’ “class waivers”—provisions
trading away the right to participate in a
class action.
In contrast, before such enforcement was
approved by the SCT’s 2011 AT&T v.
Concepcion decision, courts rarely enforced
non-arbitration adhesion contracts
purporting to trade away the right to
participate in a class action.

21. CFPB’s Proposed Rule Would Prohibit Arbitral Class
Waivers
“CFPB Arbitration Agreements, 81 Fed. Reg. 32829
(proposed May 24, 2016) (to be codified at 12 C.F.R. pt.
1040) (“the proposed rule would prohibit covered
providers of certain consumer financial products and
services from using an agreement with a consumer that
provides for arbitration of any future dispute between the
parties to bar the consumer from filing or participating in
a class action with respect to the covered consumer
financial product or service.”)

22. “Holy war” over class actions transcends
battle over arbitral class waivers.
As Professor Deborah Hensler et al. explain,
whether the benefits of class actions outweigh their
costs “is a deeply political question, implicating
fundamental beliefs about the structure of the
political system, the nature of society, and the roles
of courts and law in society. . . . [T]his political
question is . . . unlikely to be resolved soon.”
DEBORAH HENSLER ET AL., CLASS ACTION DILEMMAS 471 (2000).

23. Rather than remain in the crossfire of the war over
class actions and the battle over class waivers,
arbitration law should leave the battlefield.
Arbitration law should defer to other law: Arbitral
class-waivers should be as enforceable (neither
more nor less enforceable) than non-arbitral class
waivers; CFPB’s proposed rule goes too far in
outright prohibiting arbitral class waivers.
Stephen J. Ware, The Politics of Arbitration Law and
Centrist Proposals for Reform, 53 HARVARD J. ON
LEGISLATION 711 (2016).

24. Individual (non-class) claims.
Do comparisons of comparable cases show a difference in
outcomes between arbitration and litigation of individual
(non-class) consumer cases?
Tentative answer: probably not, but the question is
difficult because no empirical study can eliminate the
possibility that differences between the arbitration cases
studied and the litigation cases studied might explain any
differences in outcomes between the two sets of cases.

25. As the CFPB’s March 2015 report puts it,
the disputes that are filed in arbitration differ from the disputes that are
filed in litigation. ... [T]hese differences result from decisions that the
parties make about arbitration and litigation, such as the company’s
decision to have an arbitration clause, the consumer’s willingness to
initiate either arbitration or litigation, the company’s or consumer’s
decision to invoke the arbitration clause in a given litigation, and the
parties’ decision to settle or litigate. Disputes, in short, are not
randomly assigned to the two different fora. They exist in one forum
or the other because of purposeful decisions by one or both parties.
And the known outcomes—principally the cases resolved through an
arbitrator’s or court’s decision—likewise reach that form of outcome,
at least in part because of purposeful decisions by one or both parties.
CFPB Report, Section 5, page 7. http://files.consumerfinance.gov/f/201503_cfpb_arbitration-
study-report-to-congress-2015.pdf

26. Perhaps the most apples-to-apples study of comparable cases,
Drahozal & Zyontz, Creditor Claims in Arbitration and in Court, 7
Hastings Bus. L.J. 77, 80 (2011), found:
• In the court cases studied, creditors won some relief as often, or
more often, than in the arbitration cases studied (i.e., consumers
prevailed more often in arbitration than in court). ...
• In the court cases studied, prevailing creditors were awarded as high
a percentage, or a higher percentage, of what they sought than in the
arbitration cases studied (i.e., consumers fared better, or at least no
worse, by this measure in arbitration than in court).
• The rate at which debt collection cases were disposed of other than
by award or judgment (e.g., by dismissal, withdrawal, or settlement)
did not appear to differ systematically between arbitration and
litigation.
• The rate at which consumers responded (i.e., did not default) also did
not appear to differ systematically between arbitration and litigation.

27. Left (Progressive) Right (Conservative)
Don’t enforce consumers’
adhesive arbitration agreements.
Enforce consumers’
adhesive arbitration
agreements.
But if they are enforced,
courts should hear defenses to
enforcement like fraud, duress
& unconscionability.
Arbitrators, rather than
courts, should hear
defenses. (Separability
doctrine.)
Don’t enforce class waivers.* Enforce class waivers.
Courts should vacate legally-
erroneous arbitration awards.
Courts should confirm
legally-erroneous
arbitration awards.

28. Stephen J. Ware
Professor of Law
University of Kansas
ware@ku.edu
785-864-9209

29. Widely-accepted premise:
businesses using adhesive
arbitration agreements do so
because those businesses
generally find that those
agreements lower their dispute-
resolution costs

30. Jason Scott Johnston & Todd
Zywicki, The Consumer
Financial Protection Bureau’s
Arbitration Study: A Summary
and Critique, Banking & Fin.
Services Pol’y Rep., May 2016,

31. The CFPB’s finding that a temporary
moratorium on the use of arbitration clauses by
some credit card issuers did not significantly affect
pricing relative to that of issuers without such a
moratorium can be questioned on at least three
grounds.

32. The first question about the CFPB study of credit
card pricing is whether it examined non-price
contract terms.
Second, even focusing only on price, the time it
takes businesses’ cost changes to be reflected in
their prices varies.
And, third, when the cost change is expected to be
temporary, a price change may not occur at all.