If Consumers are “Clueless” About Arbitration, it’s Not Industry’s Fault

On July 26, 2023, Professor Jeff Sovern of St. John’s University School of Law published a blog post discussing a new empirical study by Roseanna Sommers, Assistant Professor of Law at the University of Michigan Law School, dealing with consumer understanding of predispute arbitration agreements.  According to Professor Sovern, the Sommers study augments his earlier (2014) study of this subject and confirms that “consumers are generally unaware of whether their contracts contain arbitration clauses, and consumers who have agreed to such clauses tend to hold mistaken beliefs about their procedural rights ….” This week, in a follow-up blog post concerning the Sommers study, Professor Sovern asserts that consumers are “clueless” about arbitration opt-out provisions because companies use “dark patterns” on their websites to mislead them.

We have written extensively about Professor Sovern’s earlier study and found it to be “deeply flawed.”  Many of our criticisms apply equally to Professor Sommers’ study.   For example, under the Federal Arbitration Act, arbitration agreements must be treated equally with other contract terms and cannot be singled out for special treatment.  Both of these studies put arbitration under the spotlight even though they conclude that many if not most consumers are not aware of or do not remember any contract terms because they do not take the time to read the contract, or read it thoroughly.  According to Professor Sommers, “real-world data suggest that vanishingly few consumers in everyday settings read contracts of adhesion in their entirety …. [F]ew [consumers] … read the fine print at all, when encountering a consumer contract.”  To argue that this invalidates the arbitration clause—but not the non-arbitration terms of the contract—improperly singles out arbitration for special treatment.

The industry is not to blame if consumers are “clueless” (Professor Sovern’s word) about arbitration opt-out provisions or other terms of the arbitration clause.  Most companies go out of their way to try to educate consumers about arbitration.  They highlight the existence of the arbitration clause at the very outset of the contract and urge the consumer to read it carefully.  They also explain in detail how the consumer can opt out of the arbitration clause, the rights that will be waived if a dispute is arbitrated, the costs of arbitration, what the applicable arbitration rules provide, appeal rights and so forth.  That is why arbitration agreements tend to be lengthy.  Moreover, italics and bold-face and ALL CAPS are used liberally to focus the consumer’s attention on the arbitration clause—just the opposite of using “dark patterns” to obscure its existence and meaning, as we have noted.

While the industry is doing its best to make consumers arbitration-literate, the Consumer Financial Protection Bureau (CFPB) is not.  The CFPB has shirked its responsibility to educate consumers about the many benefits of arbitration, particularly when compared with class action litigation, even though it has virtually unlimited resources and a dedicated educational arm, the Division of Consumer Education and External Affairs.  Its own empirical study of consumer arbitration found many data points that should greatly interest consumers.  For example, as we have previously observed, the CFPB’s data confirmed that arbitration is a faster, less expensive and far more effective way for consumers to resolve disputes with companies than class action litigation.  Its study showed that consumers who prevailed in an individual arbitration recovered an average of $5,389.  By contrast, the average class action settlement for consumers who received cash payments was only $32.35, and those consumers often had to wait as long as two years to receive that paltry sum.  Class counsel, however, recovered a staggering $424,495,451.  These are just some of the many facts that would greatly interest consumers who have a dispute with a company, if the CFPB would help get the word out and encourage consumers to explore both sides of the arbitration versus litigation debate.