It is becoming the battle of dueling studies on arbitration vs. class action lawsuits.
In an effort to sway the opinion of federal regulators about the value of arbitration over class action law suits, the U.S. Chamber Institute for Legal Reform (ILR) this week released the results of a study [PDF] showing that the vast majority of class action cases produce no benefits for most members of the class.
“Though in a number of those cases the lawyers who sought to represent the class often enriched themselves in the process (and the lawyers representing the defendants always did),” the report states.
The ILR is trying to convince the Consumer Financial Protection Bureau (CFPB) that arbitration is a better alternative for both sides than consumer class action suits. It sent the study along Wednesday with a 58-page cover letter [PDF] to the CFPB, which is trying to determine whether mandatory arbitration clauses in financial contracts with consumers are in the public’s best interest.
The letter was signed by the ILR’s president and top lawyer, Lisa Rickard, and by David Hirschmann, chief executive of the Chamber’s Center for Capital Markets Competitiveness.
But Thursday the CFPB released its own preliminary study results [PDF] showing that arbitration clauses are commonly used by large banks in credit card and checking account agreements. It said roughly nine out of 10 clauses allow banks to prevent consumers from participating in class actions.
The CFPB has the authority under the Dodd-Frank Act to conduct its study on arbitration clauses and, based on its findings, can prohibit or limit their use if it finds such measures are needed to protect consumers from savvy financiers.
Proponents of the clauses—usually businesses—claim arbitration is a more efficient and less expensive way of resolving disputes. But opponents argue that arbitration clauses keep consumers from legal protections available in court, and may simply quash a dispute without providing a suitable compromise.
Plaintiff class action lawyer Jay Edelson, of the Edelson firm in Chicago, disagrees with the ILR study that class action suits have little benefit for most consumers. “I saw a case that resulted in the restoration of billions of dollars of credit to consumers,” he told CorpCounsel.com. “That’s real impact on people.”
Edelson said the majority of his cases have brought in hundreds of dollars, and even more for some, for class members. “And class actions are a way to rein in businesses when they are acting illegally,” he added.
But Andrew Pincus, a partner in the Washington, D.C., office of Mayer Brown who conducted the ILR study, disagreed. While there may be anecdotal evidence otherwise, Pincus said, the ILR study of 148 consumer class action cases presents empirical evidence that the “real world impact” of suits is small for consumers.
The report found:
- About 35 percent of class actions resolved in the study were dismissed voluntarily by the plaintiff. Many of these cases settled with a payout to the individual named plaintiff and the lawyers who brought the suit—with nothing for the class members. Details of such settlements usually are confidential.
- About 31 percent of the class actions were dismissed by a court on the merits.
- And 33 percent of resolved cases were settled on a class basis. Though most such settlements are confidential, in six cases where the results were public record, five “delivered funds to only miniscule percentages of the class.”
The report challenges the CFPB to do its own empirical study. “Policymakers who are considering the efficacy of class actions cannot simply rest on a theoretical assessment of class actions’ benefits or on favorable anecdotes to justify the value of class actions,” the ILR said.
The CFPB’s report states that it is continuing its study, and that in the future it would take a deeper look at class action suits involving financial services “to try to assess consumer benefits and transaction costs.”
The report said the agency would also look at “whether class actions exert improper pressure on defendants to settle meritless claims [and] at the outcomes of filed class actions, including settlements,” as well as at the impact on dispositive and certification motion practices.
But the ILR made it clear that its study stands unless the agency can shoot it down with real evidence.
If the consumer agency or any decisionmaker wishes to base a new policy on the claimed benefits of class actions, the ILR said, it “would have to engage in significant additional empirical research to conclude—contrary to what our study indicates—that class actions actually do provide significant benefits to consumers, employees, and other class members.”
