FAIRFAX, Va. (8/14/15)--A study released this month by George Mason University found that a Consumer Financial Protection Bureau (CFPB) study on arbitration is flawed, and should not be used as the basis for any legislative or regulatory proposal.

“The CFPB’s arbitration report contains substantial methodological flaws and does not support a ban on arbitration clauses in consumer credit contracts,” the report reads. “To the contrary, the data presented in the report show that consumers on balance are better off if they have the arbitration process available to them for dispute resolution.”

The CFPB presented its report to Congress in March. The bureau was mandated by the Dodd-Frank Act to study the use of agreements providing for arbitration of any future dispute in connections with the offering or providing of consumer financial products or services.

The bureau found that arbitration is relatively fair and successful at resolving disputes between consumers and providers of financial products, particularly compared with class action settlements. It also suggested that regulatory efforts to limit the use of arbitration will likely leave consumers worse off.

George Mason professors Jason Scott Johnston and Todd Zywicki have many issues with the CFPB report, most notably:

• The bureau’s comparison of class action settlements and arbitration awards is flawed, since the bureau was not given access to information about the terms of consumer arbitration settlements; and
   
• The CFPB’s data primarily reflects settlements in fewer than a dozen huge class actions, which masks lower class payout rates and attorneys' fees, which are often typical in class action settlements. In addition, most of the class action settlements the CFPB used involved debt collection cases, which rarely involve defendants covered by any sort of arbitration clause.

The report found that the majority of consumer claimants involved with the American Arbitration Association, which offers low-cost, speedy dispute resolution, had higher rates of overall success compared with litigants in federal court.

The report also found that the market solution, for example, a consumer canceling a credit card if they feel an issuer has failed to respond fairly to a complaint, is the most preferred solution by consumers. Consumers generally do not know much about arbitration or class action procedures.