Mercatus Scholars Critique CFPB Arbitration Study (with Lofchie Comment)

In a paper titled "The Consumer Financial Protection Bureau's Arbitration Study: A Summary and Critique," Mercatus scholars Jason Scott Johnston and Todd Zywicki analyzed the findings contained in a CFPB final report on the use of arbitration agreements in disputes between consumers and providers of consumer financial products. The report was released to Congress in March 2015.

The scholars disagreed with most of the CFPB Report. Specifically, they argued: (i) "comparing class action settlements with arbitration awards is methodologically flawed"; (ii) "the CFPB paints a misleading picture of class action outcomes"; (iii) "the market's solution to inaccurate charges works better than either arbitration or litigation"; and (iv) "consumers perform better in arbitration than in litigation."

Lofchie Comment: The Mercatus study succeeds in poking enormous holes in the conclusions of the CFPB report. Perhaps the best thing that the CFPB could do, should it wish to test the validity of its arguments, would be to make its data as widely and cheaply available as possible so that disinterested statisticians could have a go at the numbers and assumptions. The thrust of the CFPB report seems to be that consumers who, for example, make claims against their credit card companies are better served by class-action lawsuits than arbitrations. On its face, this seems an odd argument, given that the average consumer's dispute with his or her credit card company would not make for a good class-action case; i.e., the case would be quite small and would involve facts that were unique to the situation. The Mercatus study makes the more practical point that most of us do not wish to take our small disputes to court; generally, we complain to the companies themselves and, if the disputes are not resolved, take our business elsewhere.

See: "The Consumer Financial Protection Bureau's Arbitration Study: A Summary and Critique"; Mercatus Working Paper Summary.Related news: CFPB Submits Report on Arbitration Study to Congress (with Lofchie Comment) (March 10, 2015); Appeals Court Revives Lawsuit Challenging CFPB's Constitutionality (with Zwirb Comment) (July 28, 2015).