Sign Alabama Arbitration Agreement Myself

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to put today's webinar in some context I want to read a quote it says many consumer financial products like credit cards and bank accounts have contract gotchas that generally prevent consumers from joining together to sue their banks or financial company for wrongdoing with this contract gotcha companies can sidestep the legal system avoid accountability and continue to pursue profitable practices that may violate the law and harm countless consumers those are not the words of a plaintiff's counsel or of a consumer advocacy group but rather those are the words of the CFPB itself in announcing this study that we're going to be talking about today lyrics of a song made popular by Prince say I know the times are changing it's time we reach out for something new I'm not sure that what we're seeing here is in fact the reflection of changing times but rather a change in the way the regulator's view those times my name is Lou Weiner I'm a partner at bubble and advil and Brennan I'd like to welcome to our webcast arbitration agreements and class action waivers a discussion of the potential impact of the CFPB's proposal regarding arbitration provisions class action waivers I'm joined today by my partner Tom Byrne and our colleague Frank Noland tom is a leader in Sutherlands consumer finance litigation practice with extensive experience in forcing arbitration provisions in the context of consumer finance contracts involving class action waivers while the Supreme Court has been dealing with this issue for the last six or seven years Tom's experienced more particularly in state court and adult leading to federal court extends back over two decades tom is a thought leader both in our firm and in the legal community at large on the issue of consumer finance litigation and cific Lee as it relates to arbitration provisions and class action waivers Frank Noland our colleague is an associate in the firm's New York office who has spent eight years working on class-action issues as they relate to consumer finance issues Frank has developed a specialty in the areas of arbitration clauses and class action waivers I had Sutherlands insurance and financial services litigation practice and has spent the better part of the last decade litigating issues relating to arbitration agreements and class action waivers with that as introduction is Amal are aware last week the Consumer Financial Protection Bureau proposed a rule to ban enforcement of class action waivers included in arbitration agreements found in many consumer-related finance related agreements during today's webcast will discuss several aspects of the CFPB's proposal including some of the mechanical issues scope timing required language submission of documents and enforcement was the rule we'll also talk about implications of the rule and ultimately steps that can be taken to let the CFPB know where its analysis has fallen short and misses the mark there are few few housekeeping items we'd like to cover before we get started today if you'd like to receive CLE credit for this webinar please download the CLE sign-in sheet and evaluation form from your viewing console and follow the instructions per submission if you have any questions during the webcast please submit them via the ask a question text box on your viewing tech console if you'd like to rest request a copy of the slides please contact me Frank or Tom and our contact information will be on the last slide today for those who would like to receive CLE credit for today's webinar I will be announcing a confirmation code in the middle of the presentation please make sure you write that down you'll need it in order to get the CLE credit with that let's turn to the cft d proposed regulation the CFPB's proposed regulation has two parts the first is a prohibition on class action waivers creditors may not use an arbitration provision to stop you from being part of a class action case in court that's the required language as proposed by the CFPB you can still have arbitration provisions in contracts they cannot include class action waivers that doesn't mean that you cannot have a standalone or naked class action waiver in a contract it just means it cannot be part and parcel of an arbitration provision the second prong of the CFPB's proposal requires the submission of documentation and information to the CFPB and that you must file with the CFPB copies of an arbitration agreement a claim any counterclaims the award and certain communications with the arbitration administrator the CFPB proposes to then bundle or aggregate that information and will publish it in some form at a later date none of which has been specifically identified in the proposal question then is so we know what it does who is affected the proposed rules will apply broadly to most consumer financial products and services including in the language of the CFPB those related to the core consumer financial markets that involve lending money storing money and moving or exchanging money end quote practical terms the proposed rules will affect virtually all consumer financial service companies including banks of all sizes creditors servicers sellers and purchases of consumer debt providers of credit reports debt management and debt settlement companies debt collectors person holding deposits account deposit accounts offering remittances and other payments check cashers check aren t companies payday lenders and there are certain limited exceptions to that the exclusion pursuant to propose section 10 40.3 subsection B would exclude the sale of non-financial goods and services broker zeros subject to the SEC rules governments and their affiliates providers of covered products or services that are offered fewer than 25 times per year and providers not subject to dodd-frank support example hospitals and auto dealers top we like to pick us up on the application sure Lou let's look at with a little more depth that the implications of this rule and how it would operate in the future if it becomes final we won't be putting this on our website but the bottom line here is that basically this rule if it becomes final would outlaw using arbitration as a tool to defeat class certification the the language is very broad it states that the provider which is basically in this context the creditor shall not seek to rely in any way on a pre-dispute arbitration agreement entered into after the effective date with respect to any aspect of a class action related to consumer financial products or services that that bar continues until the court has ruled that the case may not proceed as a class action and any interlocutory appeal that is available has either not been sought or the review has been resolved is the word that is in the proposed regulation so this would apply to state and federal class actions there's no federal claim required so if you for example a state court class action with that asserts fraud or aid unfair and deceptive trade practices act violation the rule would apply to that kind of case as well you can see right away that it seems to create a perverse incentive to label any individual cases a class action in order to deter or delay or arbitration that the plaintiff may seek to avoid now a class action waiver in a arbitration agreement can still be enforced after the effective date if it is in a pre effective date agreement though I'm afraid the courts are likely to be emboldened to accept the hodgepodge of anti enforcement arguments that are out there right now making their way through the state court systems now so the challenge will be after the effective date you will see cases initially that have a mix of contracts and the key there will be to move to compel arbitration early with respect to any period of class members who are governed by pre effective date agreements the experience should be similar to something we've seen before in some aspects of our industry and that is where you have a class with some people who have arbitration agreements and some consumers who do not and quite often when the class representatives don't have arbitration in their contracts the court tends to resist the full implications of the fact that most of the proposed class has arbitration agreements so that experience may be valuable and helpful in dealing with the brave new world that will happen will be upon us after the effective date now 1040 the proposed rule 10 40.4 82 is the is the required language provision which makes you insert in your arbitration agreement if it's a post-effective data agreement a statement that we agree that no one else that we nor anyone else we use this agreement to stop you from being part of a class action case in court you may file a class action in court or you may be a member of a class action even if you don't file it and that language would need to be in every contract entered into after the effective date there's also a modified provision of the rule that deals with multiple products and services where some are subject to the rule and some are not now what do we see here well first the rule oddly doesn't seem to say that contradictory class action waiver language must be deleted after the effective date but that's clearly the implication and a question is presented really about anti class arbitration language which almost everyone has had in their arbitration agreements for most of the past decade after the disastrous basil decision created a cottage industry of class arbitrations for an unfortunate period anti class arbitration language would appear to be permissible I think there may be a question or two about how its enforced and so one wonders whether class arbitrations will return the major arbitration sponsors are more skeptical of them now than they were when they originally rolled out their class arbitration procedures and clearly the providers or the creditors won't be able to initiate any arbitration until class cert is denied so no reason perhaps to go to arbitration at that point in time when you've already won the class certified the consumers of course can initiate arbitration and but almost all would probably prefer to be in court that's what their lawyers preferences will be now that they're allowed to do so so it remains to be seen whether we'll have a reprise of the class arbitration wave that we saw in in the middle part of the last decade which was really the worst of all worlds because of the limited appeal that was available and other steps that were being taken across the country to restrict class actions now the other aspect of this that Lou mentioned is the what the CFPB calls the monitoring provision which is 1040 point for B and it imposes rather onerous monitoring requirements which frankly seem intended really to dissuade individual arbitrations altogether the extensible purpose of the monitoring provision is to gather data with respect to individual arbitrations and their impact on consumers for the purpose of considering perhaps further rulemaking but the requirements are would require quite a bit of documentation in a short window within which to provide it of 60 days after receiving or filing a covered document which includes the initial claim in arbitration any counter claim the award any judgment and certain communications with the arbitration administrator that are specified in the rule so pursuing an individual arbitration after the effective date will be even more onerous than it is now and as we know now with the entire expense of the individual arbitration almost entirely is borne by the creditor Lou should I say a few words about timing at this point Tom let's talk about the timing because there are timing this is not immediately effective but rather follows a prescribed notice comment period would you talk a bit about that well the rule specifies the standard 90 day comment period which runs from the date of publication of this rule the federal register so that hasn't been published yet so presumably that will be sometime in August now after that comment period how long before the final rule is issued is uncertain there are no timing requirements the it would be up to the bureau if they wanted to they could withdraw the rule of course but that isn't likely to happen but so there is no no strict timetable that governs that step in the process now once the rule becomes final if it should be subject to the Congressional review Act which is a statute passed in the mid 90s intended to provide for expedited review of government regulations by Congress and it does streamline Congress's internal procedures for bringing a resolution before both houses the one requirement is that the issuing agency here the bureau submit the final rule to Congress and to the GAO the Government Accountability Office for review immediately upon adoption if the rule is deemed a major rule and that to say is left in the Office of Information and regulatory affairs then there are some additional requirements the effectiveness of a major rule is delayed for at least 60 days after being submitted to Congress and could be delayed somewhat longer depending on what Congress does a major rule is defined as any rule that the Office of Information and regulatory affairs finds likely to result in an annual effect on the economy of a hundred million or more or a major increase in costs or prices for consumers or individual industries so it's hard to see how this rule could not be deemed a major rule even looking at the face of the bureau's of materials submitted with the proposed rule so once a resolution of disapproval from both houses is enacted if it is and that would be difficult here in this climate the the resolution is still subject to a presidential veto which seems quite likely if it comes before President Obama and you have to be skeptical about the history of these resolutions there have been 99 or so of them passed and have been introduced in Congress since the adoption of the Act and only one agency rule has ever been invalided so this is a step in the process likely but it doesn't seem likely in the current configuration to be an impediment to this rule taking effect interestingly the there's already been a request for documentation by one of the House committees and it focuses largely on contacts that the bureau had representatives of the trial lawyer community so the political process here will will heat up shortly now the effective date of the let's assume there is no congressional resolution the effective date is 211 days after publication of the final rule in the Federal Register that takes into account the required dodd-frank six-month delay that is in Section 10 28 of the statute and then an additional standard 30 days for the rule to become effective plus plus a day so that probably just guessing that probably puts the effective date of this if it all goes as the bureau seems to plan sometime in the spring of of 2017 there will be abundant headaches in the transition I think everybody recognizes that that will affect some industries more than others particularly with the implementation of old contour the removal of old contracts the implementation of new contracts of new forms to get full advantage of arbitration I guess the goal would be to use the old contract right down to the effective date but that may be logistically impossible especially in decentralized industries like auto finance because there's a lot of reliance on different forms and some generic forms so that may be a goal that can't be realized now what I'm started talking there was a question that's been asked that I just want to pick up on it says auto dealers are excluded if so do you think that indirect auto lenders who purchase retail installment sales contracts from autos and me'll auto dealers will be able to enforce arbitrations in such agreements there's an interesting for part of the of the study of the rooms are the proposal the CFPB proposes to have the rule apply to contracts that quote existed previously between other parties the meaning of that language is a little unclear the example provided by the CFPB is one bank purchasing another bank whose consumer contracts included arbitration clauses that predated the rule in which case the CFPB proposes to require the acquiring bank to modif those contracts to comply with the new rule although unclear from the example on the commentary associated with that suggests the CFPB would apply the rule to acquisition of a portfolio of contracts even where there's not a change in this servicer so I take that to say that that they may require if you do acquire in the context the question was asked these contracts that they be brought into compliance with the rule but I just wanted to address that in the context of this discussion Tom I'm sorry let me let me throw it back to you on the question i don't think that indirect auto lenders will be able to take advantage of the dealer's arbitration agreement which is often found in a buyers order I think the dealers will be able should be able and the the bureau is dancing around this and I expect they'll get heavy comments from the nada but the dealer should be able to enforce its arbitration agreement against the customer but when it comes to the acquirer of the contract you know they won't be able to enforce it I'm certain that will be the bureau's position that's likely to be how the rules interpret is if the rule becomes fun I was going to say a couple of things Lou about the future of arbitration the question may become whether or not there's any purpose in continuing with arbitration agreements given the expense of the process with respect to individual claims and I expect that the answer there may vary with creditors now creditor initiated arbitrations are subject to moratoriums by the by the Triple A and vibe jams and so the naf is out of the business entirely so creditor initiated arbitrations don't have any usefulness to creditors there is no longer apparently going to be much value in resisting class actions from having an arbitration agreement and all of them have a small claims court exception already which is consistent with the triple a's due process protocol and other fairness standards that are now adopted by the by the administrators so the question may come down to whether the particular redditor faces defensive litigation that is of a nature that that would be best met with the availability at least of individual arbitration the disadvantage advantage of arbitration again you got to pay for it because the consumer typically pays the filing fee and that's it and there although some agreements do feature caps on overall administrative expense and the other problem is the limited appeal that's available from arbitration if something goes bad which has been a concern of course for many years in the use of these agreements if you recall the origin of the use of consumer arbitration agreements really was initially to stop runaway jury verdicts in places like Alabama and Mississippi where these first came into more widespread use but then the Supreme Court came to the rescue with BMW against gore and began imposing due process limits on punitive damages so that problem faded and the advantages of defeating class actions through the use of arbitration agreements moved to the fore great I Frank in the words of the Grateful Dead what a long strange trip it's been glad we get here so um was talking about where we're going this study the proposed regulation rather came out six days ago and it could go into effect as early as a year from now but this has been coming down the tracks for a long time so dr. the dodd-frank Act requires the CFPB to study these provisions and gives the power it gives them a power to effectuate that study in a regulation so subsection a gives them the power to study subsection B gives them the power to regulate regulate arbitration agreements provided that the findings in each rule shall be consistent with the study conducted and we've we've reviewed the regulation we reviewed the study and there's no doubt that the regulation proposed regulation follows the study whether or not the study is flawed and therefore the regulation is flawed is is another matter so the study that was that that the proposed regulation was was based on was released in March of 2015 and that first quote that we have on this slide you'll see the study showed that at least 160 million class members were eligible for relief over the five-year period studied those settlements totaled those settlements totaled 2.7 billion dollars in cash in-kind relief and attorneys fees and expenses so that's that that's a very loaded quote for a couple of reasons that we'll get into later I just highlight that a few parts of it 160 million class members eligible for relief the settlements for those proposed class actions and the attorney's fees so it's not saying that 160 million people collected on after a jury verdict in a class action trial and it's not even saying that 160 million people collected when they were eligible to as part of a proposed settlement class it's also saying that 2.7 million dollars part of that was in attorneys fees and who's going to talk about that a little bit later but that's it that's a very loaded quote so the study found what was one of the many numbers of the study noted was that more than 75 percent of responding credit card consumers did not know if their credit card agreement included an arbitration clause now we'll talk about that that's basically a way of saying that it was buried in the fine print so we'll talk about that later as well another number that the study relied on was that arbitrators required consumers to pay 2.8 million dollars because the fact is is that these arbitration provisions work both ways that was something that was really not focused on in the regulation or the comments by the CFPB when they released the regulate proposed regulation last week but the the conclusions of the study are that the increasing prevalence of class action and class arbitration waivers are harming consumers would be better aided by traditional litigation including and especially class-action lawsuits so concluded specifically that class action litigation is superior to individual arbitration so implicit in that is the assumption that class actions are superior to individual litigation also implicit in that is that the defendants in these class actions whether or not they went forward to a verdict or they were settled or even just settled on an individual basis is that the defendants acted unlawfully even when so that that's something just to keep in mind as we move forward with the presentation you one of the interesting aspects of the report is the absence of any real discussion of the Supreme Court cases that we're all familiar with stolt-nielsen concepts young American Express direct TV etc on over the last seven six seven years the Supreme Court has consistently ruled in favor of the enforcement of arbitration provisions and class action waivers the CFPB is arguably not looking to change the law as it was announced by the Supreme Court but rather impose a different set of obligations on consumer finance companies and related companies as it relates to arbitration provisions nevertheless to read the report you would think that the Supreme Court had never weighed into the area I think stolt-nielsen is mentioned in one paragraph and the American Express the Italian tricolours case has been relegated to one sentence in one footnote again as if these cases were never we're never considered by the Supreme Court and as if the underlying premise of these cases the issues of public policy enforceability of class action waiver etc were never considered so you end up in a situation where we have what looks now to be somewhat of a Pyrrhic victory in the Supreme Court pronouncements over the years of enforceability of class arbitration provisions and class action waivers and yet what the Supreme Court giveth the CFPB taketh away and again I think it ultimately will result in a challenge to the CFPB's rulemaking and it is contrary to the law as announced by the Supreme Court but again we're to a certain extent arguing bulls and oranges there are questions been posed as it relates to what the CFPB is done here and the question is can we address the potential for other agencies to pass similar rules I don't think that there is much risk of other agencies passing rules like what the CB CFPB is done here simply because of where this rule comes from it comes from a delegation of authority and specifically in the consumer finance Protection Act on the CFPB was authorized by Congress to study the issue to issue report and then the recommendations become self effectuating other agencies don't have that same that that same Authority that's not to say that Congress can't do anything but i don't think the agencies themselves absent a delegation of authority and having the specific authority guys does the CFPB could do this you know there is there is a certain amount of speculation in that but I think that we have to look at and consider how the CFPB arrived at this point and and what its authority is based on as the foundation for the for the rule I'm Tom Franken and any thoughts on that I agree Lou and of course HUD probably not terribly interested in it because most mortgages are prohibited from having arbitration agreements but another provision of dodd-frank so i think that the you would expect other federal agencies here just to defer to the CFPB which has the statutory authority to act and and boy has it acted Tom I'm going to throw the next question over to you because I know it's an issue that we discussed in preparation for for the presentation but the question is can we address the basic separation of powers preemption issue how can an administrative agency operating with the gen no mandate overrule legislation upheld by the Supreme Court let me let me throw that over to you Tom well it's a very good question of the the agency is not really overruling the Supreme Court however what the supreme court was dealing was applying the FAA and the the bureau's position is that it has been authorized by Congress in dodd-frank section 10 20 82 issue regulations that prohibit use of an arbitration agreement or impose conditions on the presentation materials by the CFPB crow a good bit about the fact that they could have entirely outlawed arbitration but all they did was prohibited from being used to deter class actions well they know full well that's where really where the money is here but that that may be the difference with respect to the the Supreme Court line of cases now the separation of powers arguments have been raised recently in the ph h appeal of the hundred million dollar disgorgement penalty imposed by Cordray in an enforcement proceeding before the bureau and in the recent argument last month I believe was on April to 12 the and there's a slide we have in front of us now with a few details the creditor the ph h argues that the CFPB violates the constitutional provision on separation of powers in several ways in first-quarter a is not answerable to the president and he's removable only for cause which the ph h argues is a violation of the faithful execution Clause of the Constitution in addition of course the director of the CFPB sets his own budget and it's prohibited from any review by Congress he gets his money from the right out of the federal reserve again that's that unchecked use of budgetary authority especially by an agency that doesn't have a multi-member commission structure is is challenged so this argument however is at the very end of the arguments made by PHH naturally and so they do preserve it but there will be a that may be it may be tough to establish they could concede for example that some elements of the agency structure perhaps the sole member feature probably our individual could be individually permitted under case law but emphasized that when you blend them all together it makes a good case for separation of powers so will we should know relatively soon I guess though it is the DC Circuit's and maybe not that soon how this comes out again just looking at PHH you know the issue there was the the CFPB itself had argued for the hundred-plus million-dollar penalty which was rejected by the administrative law judge who awarded a six million dollar disgorgement penalty it then went back to director Cordray for a review and what did he do he imposed the fine that they recommended initially that the administrative law judge rejected so you do have a situation where the CFPB is literally and figuratively acting as the judge jury and executioner as well as well as the appellate board which again gives rise to the the claims and the challenges that Tom mentioned we do it we do have another question about the likelihood of six of a successful challenge and let's turn to that and issues on unchallenging the proposal there is a comment period one of the things that I thought was striking about the the proposal itself is that they talked about the comments that the CFPB received in response to the initial study the initial report and you would think that given the number of entities affected and the money involved they would have been a lot more comments and I was surprised by a few comments the CFPB reported receiving on it on its report so I think that one thing to take away is that the comments are important they do get red and I think that it would be folly to assume someone else is going to cover that so I think taking advantage of the comment period is important and then what is the source and what should be the focus of those comments well i think that the comments have to point out the flaws in the study the flaws in the analysis let me give you an example the analysis in the report doesn't say anything about attorney's fees for plaintiffs class action lawyers in my opinion that's what's driving a lot of the class action plaintiffs class action violence the CFPB kind of cloaks itself in this flag of we're protecting the consumers but do the math the the CFPB's own numbers say that for settlements of class actions though that yielded for the time in question which I believe was a two year period yielded 2.7 billion dollars I'm sorry five year period yield 2.7 billion dollars in favor of consumers of that amount approximately 500 thousand dollars five hundred million dollars was attributable to plaintiffs counsels attorneys fees I think that's an understated number just using the percentages that the CFPB itself has reported in the report nevertheless just using their numbers that resulted in 2.2 billion dollars being available for distribution to 160 million plaintiffs that's eligible for distribution not necessarily claimed do the math that's under fourteen dollars per plaintiff and yet if you look at the amount that the plaintiff's counsel are getting it pales in the amount that the consumers get pale in comparison that's what's driving these lawsuits we defend dozens of class actions every year we see class actions where the plaintiff's counsel is getting seven digits the consumers affected that are the subject of the complaint that the CFPB and others are looking to protect get on average eight dollars most people don't claim because frankly it's not worth their time to claim so what's driving this is it as the CFPB has as asserted they're looking to vindicate the rights of the individuals to hold corporations accountable I think that that's that's a lot of rhetoric and doesn't get to the real issue and that is what's driving this is the plaintiffs the plaintiffs attorneys who are lining their pockets and arguably are you know taking advantage of the consumers just as much if not more than they are accusing the people in the consumer finance areas of taking advantage of the consumers either way the consumer is in mind in from my perspective coming out second here and I think that that's something that I think it was intentional that it was not it was not addressed by the CFPB but i think it's glaring that they have failed to address it similarly they address the what i consider to be the tort reform issue they talk about it in terms of a cola the equal credit opportunity act and they note that the original limit on damages for a co of violations was 100,000 the ceiling was then raised to 500,000 and ultimately to 1 million for those familiar with California law there's the rosenthal Act which is the California vers on of the Fair Debt Collection Practices that which has in it a damages limit I think if the CFPB were in fact exercising fidelity to the idea that they are looking to correct alleged illegal or you know again we just call it what the way the language that the CFPB uses which is illegal conduct I think that they could achieve that result while striking some type of balance namely have a limit on damages which would focus on changing the behavior but more importantly would limit the availability of attorneys fees to the plaintiffs counsel and I think that that would present a more balanced proposal but yet was completely devoid of any discussion or any meaningful discussion in the report Lou let me offer a couple of thoughts about Mike pretz question about the likelihood here of getting any relief either in Congress or through litigation I may be more pessimistic than most folks but it's really hard to be optimistic about it given the current climate and the rules that apply first there's going to be a difficult arbitrary and capricious standard would have to be met and challenging any final rule that's that can be done has been done in other industries with elaborate administrative records especially where there's science involved not so much of that here there could be an argument made that the study itself is not bona fide and doesn't meet the requirements of the statute that there be a prior study there's no doubt here I don't think there will be an argument that the proposed rule is faithful to their studies it follows it very quick very carefully naturally but whether or not the study is bona fide seems like a fair question but again another difficult one then there is the set of arguments made in the ph h case about separation of powers plus potentially a delegation doctrine argument about section 1028 because it does delegate authority rather broadly to the bureau to decide what to do about consumer arbitration now there hasn't been a delegation doctrine success in the court since nineteen thirty-five and the standard is whether or not there's been an intelligible principle by which congress directed the agency to make rules so again another difficult argument but one that probably will be dusted off and looked at more carefully in light of this rule another reason it's kind of hard to be real optimistic is we have an open seat on the Supreme Court and Justice Scalia was after an initial halting start very friendly toward arbitration now it looks like it would be 44 on any clothes question about this and justice Thomas's vote is not reliable because he is often opine exactly that the application of the FAA and state courts is unconstitutional so and and with that situation and the fact that many of the Federal Circuit's as their membership has changed over time are now trending more liberal than they had been for many years it's really hard to see any judicial outcome here and say that it seems likely that the the rule would not pass muster the real wild card perhaps is the election so there's a Republican president then it's an entirely different world but of course that's anybody's guess thanks Tom for those who have been waiting for the the code for the CLE credit if you do want to receive CLE credit for today's webinar the confirmation code is arbitration please use this code for the sign-in sheet available for downloading from your viewing console on Frank let's get back to the issue of the concerns regarding the the CFPB study sure the comment once the comment period begins that's a real opportunity to point out to the CFP be what they probably already know is it's a number of flaws and there's certainly no shortage arguably for one they do not address the likelihood of an increased cost of products because of increased litigation costs nor do they address reforming standard contracts to comply with regulations or even outright removal from contracts in the closet that would be passed on to consumers it's actually not correct say they don't address it but they gloss over it and say that they welcome comment on it although they do not think that that is likely to change their analysis another flaw they down excuse me they accept all the alleged versions of class actions and they assume that defendants who settled did so because they were acting unlawfully which ignores the enormous pressure that defendants are under to settle particular post certification but even before then and they ignored the basic risk management principles that defendants face when they are hit with a class a period of class action lawsuit and that maybe sometimes it's more effective to settle even if the is suit is without merit than to go through the cost of the expensive litigation so they don't address that they do not address the or even pay any heed to any potential advantages of arbitration whether or not you believe it's more quick and more efficient it does usually does not involve attorneys which is certainly an advantage for defendants another big thing that they ignore is the distinction between types of arbitration provisions and there's a specific example that we can talk about here under telephone is Discover Bank rule which is his since been overturned it found that class waivers were unfair two things were met a single consumer has no incentive to arbitrate and number two if a consumer needed services of an attorney which a small claim would not incentivize fair enough att's arbitration agreement was challenged in eighteen the V conception and it was ultimately upheld but after that case was resolved ATT went back and they adjusted and revised their arbitration their their waiver agreement and they're in their contract first they made arbitration free to customers and second they provided that any consumer who received even a dollar more than their settlement offer in an arbitral award was automatically awarded a flat fee of ten thousand dollars in addition to the arbitral award and on top of that the attorneys for the consumer if they did bring one would get twice their fees and expenses again if the offer turned out to be less than the ultimate award so they incentivize the use of these of arbitration on a single consumer basis so this study and and the and the proposed regulation ignored the differences between these waivers potential waivers and provisions and lump them all in together I do I believe there's there's another question no not a procedural issue Lou also mentioned comparing apples to oranges and we talked about the class settlements and the numbers that the mind-blowing numbers that the CFPB relied on and its study 2.7 billion dollars in settlement they didn't compare that to arbitral settlements they compare that to arbitral awards they did note in a separate section that fifty fifty nine percent of arbitrations on an individual basis while resolved before going to arbitration so they're settled if they did not compare those numbers to the potential settlements nor do they compare arbitral awards to class action verdict Awards one of the takeaways there too from my perspective the comment period on the proposed rule provides an opportunity to raise important questions about the rule including whether it's consistent with the FAA the US Supreme Court precedent whether the CFPB has an adequate evidentiary basis for its conclusions and has conducted a proper cost-benefit analysis to support the rule and whether the CFPB improperly prejudiced the outcome of its arbitration study for the rulemaking process itself those who are affected by the CFPB's proposed rule should should seriously consider submitting information relevant to the cost-benefit analysis of the proposed rule specific to your own business including information about the cost of defending class action lawsuits the average amount of award or settlement with individuals who are participated in mediation or arbitration compared to any benefit provided under class action settlements while the CFPB you know I think as Tom said may make some minor revisions to the rule based on the comments it receives we just don't expect the CFPB to adopt any major changes but by submitting comments raising these and other concerns those affected by the rule can build a record for possible judicial challenge to the final rule once it's published the second takeaway is during the comment period companies should also review their consumer contract forms to determine what modifications if any will be necessary and beneficial to their business interests if and when the rule becomes final so again sitting on your hands is not the recommended course of action here there is a call to arms if you will to comment on this to let the CFPB know how it's going to affect your your business and specifically to let them know what they have overlooked but it's also an opportunity to take a necessary look at the contracts that you have as acidity at the very beginning of the presentation on the the rule bands with would ban class action waivers and arbitration provisions that doesn't mean that a naked or standalone class action waiver might not survive query when stripped from the public policy issues that support the FAA whether a naked standalone class action waiver would apply I think it's largely going to come down to an issue of state law some states are more supportive of those than others but that's something that you should be considering again as well as a review of your your existing contracts Tom in the last minute or so closing word well it'll be interesting to see I think there will be various litigation challenges to this that are broad and I assume they'll be brought with through the association's in order to spread the cost of it for one thing so it'll be interesting to see how that develops over the next few months I understand there may be some issues with the CLE form you have on the screen our contact information if anyone is having any issues with the the CLE form please contact any of us and we will make sure that we get that to you I would like to thank everyone for joining us today again the CLE form is the vehicle for getting CLE credit if you have any any questions you do want to follow up you'd like copies of the slides please feel free to contact me Louie nur Tom Byrne Frank Noland and we thank you very much for your time hope everyone has a great day