Report | March 2023
A Critique of the CFPB Proposed Rule: Companies That Use Arbitration Agreements Do Not Pose Any Greater Risks to Consumers Than Those That Do Not
By Nam D. Pham, Ph.D. and Mary Donovan
In January 2023, the Consumer Financial Protection Bureau (CFPB or “the Bureau”) proposed a rule to conduct what it described as a risk-based supervision program that would increase scrutiny of and enforcement attention to nonbank financial services companies over which it has jurisdiction. In its proposed rule, the CFPB uses examples and anecdotes to state that financial service providers’ use of certain terms and conditions in their consumer contracts, including arbitration agreements, poses heightened risks to consumers. The Bureau’s inclusion of arbitration agreements in its targeted list of contract terms thus rests on its claim that arbitration agreements create consumer risk.
In this study, we analyze and, ultimately, refute a primary premise used by the CFPB to justify the proposed rule: the agency’s assertion that the use of arbitration agreements equates to consumer risk. In the proposed rule, the Bureau points to consumer complaints and its enforcement actions as relevant measures of risk. So, for the purpose of this analysis, we use the CFPB’s own data—its consumer complaint database, list of enforcement actions, and estimates of companies using arbitration agreements—to analyze whether there is a correlation between companies using arbitration agreements and companies with consumer complaints or subject to CFPB enforcement actions. Our findings show no correlation between companies using arbitration agreements and consumer complaints. Similarly, there is no evidence of a relationship between companies using arbitration agreements and the CFPB’s enforcement actions. These findings hold true when examining the relationship between companies designating as administrators the American Arbitration Association (AAA) and Judicial Arbitration and Mediation Services (JAMS), two of the largest arbitration service providers, and the CFPB’s enforcement actions or consumer complaints to the CFPB. All of these findings squarely contradict the Bureau’s contention that the use of arbitration to resolve disputes somehow creates risks for consumers.