The document discusses the nullification of the CFPB's rule prohibiting class action waivers in arbitration agreements for consumer financial products. It notes that: 1) Current law generally enforces class waivers in arbitration agreements. However, some courts previously declined to enforce them. 2) In 2016, the CFPB proposed a rule prohibiting class waivers but Congress passed a resolution in 2017 nullifying this rule. 3) There are partisan divides over arbitration issues in Congress, the executive branch, and the Supreme Court along Democratic/Republican lines. The debate involves differing views on the level of consumer consent required for arbitration agreements.

1. Nullification of the CFPB’s
Arbitral Class-Waiver Rule
in Political and Legal Context
Stephen J. Ware
Professor of Law
University of Kansas
ware@ku.edu
785.864.9209

2. Outside securities arbitration (FINRA Rule
13204), current law generally 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, many courts declined
to enforce class waivers.

3. 2016: CFPB’s Proposed Rule Would Have
Prohibited Arbitral Class Waivers
81 Fed. Reg. 32829 (May 24, 2016): “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.”

4. In late 2017, Congress passed and the
President signed into Law H.J. Res. 111
which nullifies the CFPB's rule.
Sylvan Lane, Trump repeals consumer arbitration
rule, wins banker praise, THE HILL (Nov. 1, 2017).

5. CFPB was headed by a Democrat
(Richard Cordray).
Senate vote to nullify CFPB rule was
along party lines except for two southern
Republicans – Graham (SC) and Kennedy
(LA) – so V.P. Pence’s vote broke 50-50
tie.

6. Switch of White House from Obama (D) to
Trump (R) may also have slowed or stopped
agencies from restricting arbitration
agreements in areas as diverse as nursing
homes, communications, and federal
contractors.
Perry Cooper, Arbitration Update: CFPB Rule Uncertain, Mixed
Fates for Others, BLOOMBERG NEWS, (June 1, 2017), (“A half
dozen Obama-era rules to limit mandatory arbitration have met a
variety of fates in the four months since Donald Trump became
president.”).

7. These events fit in a longer term political
and legal context, going back at least as far
as the 1990’s for arbitration, and the 1970’s
for class actions.

8. “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).

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

12. Partisan divide in Congress evident in
vote to nullify CFPB; and in higher
Democratic support for Dodd Frank
(mortgages) and proposed Arb. Fairness
Act: “no predispute arbitration agreement
shall be valid or enforceable if it requires
arbitration of an employment dispute,
consumer dispute.”

13. Partisan divide in executive.
Switch of White House from Obama (D) to
Trump (R) may (in addition to nullifying
CFPB) also have slowed or stopped agencies
from restricting arbitration agreements in
areas as diverse as nursing homes,
communications, and federal contractors.
Perry Cooper, Arbitration Update: CFPB Rule Uncertain, Mixed
Fates for Others, BLOOMBERG NEWS, (June 1, 2017), (“A half dozen
Obama-era rules to limit mandatory arbitration have met a variety of
fates in the four months since Donald Trump became president.”).

14. SCOTUS divided on party lines of
nominating president in
AT&T v. Concepcion (2011), and
Amex v. Italian Colors (2013).
Same was true of Rent-A-Center v. Jackson
(2010), except that the four dissenters
consisted of the three Democratic-appointees
then on the Court plus Justice Stevens, who
was appointed by President Ford.

15. 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.

16. 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.

17. Stephen J. Ware, The Politics of Arbitration
Law and Centrist Proposals for Reform, 53
HARVARD J. ON LEGISLATION 711 (2016).
The Centrist Case against Current
(Conservative) Arbitration Law, 68 FLORIDA
L. REV. 1227 (2016).
The Centrist Case for Enforcing Adhesive
Arbitration Agreements, 23 HARVARD
NEGOTIATION LAW REVIEW 29 (2017).

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

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

20. 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.

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

22. 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.”

23. 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.”

24. Unconscionable is “terms unreasonably
favorable to the stronger party.” Restatement
of Contracts (Second) § 208. (Harsh, one-
sided).
So unconscionability of arbitration
agreement(s) ought to turn on comparison of
arbitration to its relevant alternative, litigation.

25. 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.

26. 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_Arbitr
ation_Agreements_Notice_of_Proposed_Rulemaking.pdf

27. 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).

28. 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.

29. 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

30. 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.

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