NAFCU’s Comments to CFPB on Arbitration Agreements

June 22, 2012

Monica Jackson
Office of the Executive Secretary
Bureau of Consumer Financial Protection
1700 G St., NW
Washington, DC  20006

RE:  Docket No. CFPB–2012–0017

Dear Ms. Jackson:

On behalf of the National Association of Federal Credit Unions (NAFCU), the only trade association that exclusively represents federal credit unions, I write to you regarding the Consumer Financial Protection Bureau’s (CFPB) request for comment on arbitration agreements.  It is our understanding that the credit union industry does not make significant use of arbitration agreements.  NAFCU’s member credit unions generally find arbitration agreements to be of limited value.  However, some credit unions use pre-dispute arbitration agreements for some products and services and it is important that this tool not be eliminated from the market.  As the CFPB certainly understands, arbitration agreements are a matter of contract and should generally be enforced just like any other contract provision.

The first set of questions that the CFPB asked is in regards to the prevalence of arbitration agreements, and specifically, how the Bureau should study their prevalence.  As a starting point, it is important to note that the Bureau should take care to ensure that its study does not create an undue burden on regulated institutions.  Specifically, NAFCU’s concern is that in conducting the study, the CFPB may require covered institutions to respond and comply with a lengthy and complex disclosure process intended to gather information regarding that particular institution’s use of arbitration agreements.  Given the scope, pace and breadth of recent regulatory changes, NAFCU requests that the Bureau do what it can to minimize any additional demands on the time and resources of covered institutions.

The Bureau also asked what particular markets, products or services the CFPB should examine.  It seems logical that the Bureau should begin from one of three starting points.  The most rational starting point would be to focus on market, products or services offered by unregulated or lightly regulated entities.  Federal credit unions and other depository institutions are already subject to considerable oversight and are supervised by at least one, and often times several, federal agencies.  Given that Congress indicated it believes that pre-dispute arbitration agreements warrant scrutiny, beginning the process by examining under-regulated entities would likely provide the most useful results for consumers.

Second, the agency could focus on the products or services that are most widely used by consumers.  If there are issues which need to be examined, starting with the most common markets would naturally lead to offering protection to the greatest number of customers.

The third approach the Bureau might take is to examine products or services that are likely to have the most significant impact on individual consumers.  This approach may not cover as many consumers but would focus on the most egregious potential issues that might arise out of arbitration agreements.
The Bureau also asked about whether the study should focus on particular terms in arbitration agreements.  In this regard, NAFCU recommends the Bureau focus on whether certain terms in particular agreements are inordinately favorable to the institution without providing any corresponding benefit to consumers.  

The second set of questions the CFPB requested comment on deals with the use and impact of the agreements in a particular case.  Regarding claims that consumers might bring, all of the areas of study the CPPB mentions are reasonable.  In particular, the Bureau should examine the cost and speed of dispute resolution.  Minimizing costs and speeding up dispute resolutions are two of the key reasons that companies use arbitration agreements.  Accordingly, any study that does not examine the costs savings, and ease and speed of the process would seem incomplete.  Additionally, in this regard, the Bureau should consider studying the savings, in both time and money, that arbitration agreements generate for state and federal courts.  The court system is already considerably overextended by the number of lawsuits filed each year.  The Bureau might also consider the extent to which arbitration agreements discourage frivolous lawsuits, the costs of which must be borne by the courts, the taxpayers, the financial institution and, ultimately, all consumers.

Further, comparing the costs of arbitration and the costs of litigation may be particularly instructive in the context of consumer benefits.  It is entirely possible that the costs savings alone of arbitration outweigh, in many cases, any benefits that the consumer might gain from pursuing litigation.  For example, in some states, the costs of arbitration for certain low or moderate income individuals must be borne by the business entity.

Closely related to this issue, the Board should consider studying the factors that impact consumer understanding and satisfaction with the dispute resolution process.  Studying consumer satisfaction would help assess whether consumers would actually fare any better under a different system.  Further, studying this issue would help financial institutions in reassessing potentially problematic clauses in their arbitration agreements.

Next, the CFPB sought input regarding situations where a covered entity brings a claim against a consumer through the arbitration process.  NAFCU is not aware of any credit unions that have used the arbitration process in this manner.  Accordingly, the Association does not have any comments regarding the Bureau’s questions on this issue.  Based on the questions the CFPB asked, however, it appears that this practice is uncommon, if it occurs at all.  While this issue may merit examination, NAFCU merely suggests that the CFPB examine this issue quickly and efficiently given that there appears to be little evidence that covered entities engage in this conduct.

Finally, the Bureau asked whether it should study the impact of arbitration agreements on consumers, the market and the development of applicable law.  NAFCU does not have any particular problem with the six specific areas the CFPB is considering examining.  However, as a general matter, NAFCU encourages the CFPB to develop a reasonably targeted approach in conducting the study.  While the different items the CFPB is considering are all quite reasonable, taken together, they would constitute a significant undertaking.  In conducting studies – as in promulgating rules – the Bureau should focus its efforts only on those issues that clearly require attention.  Targeted measures will, in general, be more effective, less burdensome and help eliminate creating unintended consequences.

NAFCU appreciates the opportunity to share our thoughts regarding this matter.  If you have any questions or concerns, please feel free to contact me.


Dillon Shea
Regulatory Affairs Counsel

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