CFPB’s Proposed Rule Unlikely to Hurt Arbitrators’ Business

By Chris Bruce, Bloomberg BNA

The Consumer Financial Protection Bureau’s (CFPB) proposal to limit mandatory arbitration may have little impact on the alternative dispute resolution (ADR) business.

The CFPB is not proposing an across-the-board ban on consumer finance-related arbitration, but even if it did, the effect on the not-for-profit American Arbitration Association (AAA), would be minimal, AAA Senior Vice President Richard W. Naimark told Bloomberg BNA Oct. 7.

Consumer-related arbitration as a whole, he said, makes up less than one percent of AAA’s cases. “Any kind of financial impact on this organization would not be particularly significant,” he said. The AAA, founded in 1926 shortly after passage of the Federal Arbitration Act, also provides services outside the U.S. through its International Centre for Dispute Resolution.

In a March 2015 report, the CFPB said the AAA, which contributed data for the study, administers “the vast majority of consumer financial arbitration cases.”

JAMS, a for-profit company founded in 1979 that calls itself the world’s largest ADR provider, did not immediately respond to a request for comment on the impact of the CFPB proposal. In its March report, the CFPB cited a study in which JAMS reported that it handles “at most” a few hundred consumer cases each year. The percentage of those cases that deal with financial matters is unknown, the CFPB said.

ADR providers employ retired judges, attorneys, or both to referee disputes, often as independent contractors.

One by-product of the CFPB initiative could be more data about the ADR process and how particular cases play out, said Professor Nancy Welsh of Penn State’s Dickinson School of Law in Carlisle, Pa.

The CFPB has proposed that companies should report to the CFPB all filings involving consumer financial arbitration disputes, as well as decisions that result. The agency also is considering whether to make that information public.

Welsh, the chair-elect of the American Bar Association’s dispute resolution section, Oct. 7 said that theme of increased transparency will take on more weight.

“With certain limited exceptions, we have no reliable source of information regarding the number of disputes going to arbitration or their outcomes — even though private arbitration relies upon our public courts for the enforcement of awards,” Welsh said in an e-mail to Bloomberg BNA. “This part of the CFPB’s proposal is likely to receive less attention, but it is also very important,” she said.