1 CONSUMER FINANCIAL PROTECTION BUREAU INFORMATION COLLECTION REQUEST

– SUPPORTING STATEMENT A

TELEPHONE SURVEY EXPLORING CONSUMER AWARENESS OF AND
PERCEPTIONS REGARDING DISPUTE RESOLUTION PROVISIONS IN
CREDIT CARD AGREEMENTS

(OMB CONTROL NUMBER: 3170

- XXXX)

The Consumer Financial Protection Bureau (the “CFPB”) seeks approval from the Office of Management and Budget (“OMB”) to conduct a national telephone survey of 1,000 credit c ard holders as part of its study of mandatory pre

- dispute arbitration agreements, which is required under Section 1028(a) of the Dodd

- Frank Wall Street Reform and Consumer Protection Act, Public Law No. 111

- 203, Title XIV (the “Dodd Frank Act”).

The surv ey will explore (a ) the role of dispute resolution provisions in consumer card acquisition decisions and ( b ) consumers’ default assumption s (meaning consumers’ awareness, understanding, or knowledge without supplementation from external sources) regarding their dispute resolution rights vis

- à

- vis their credit card issuers, including their awareness of their ability , where applicable, to opt

- out of mandatory pre

- dispute arbitration agreements

. 1 The survey will not gather data regarding respondents’ post

- fact satisfaction with arbitra tion or litigation proceedings, given the difficulty in finding consumers that have had personal experience with both forums.

A. JUSTIFICATION

1. Circumstances Necessitating Colle ction of Information

The CFPB seeks approval from OMB to conduct a national telephone survey of 1,000 credit card holders 2 exploring consumer awareness of and perceptions regarding dispute resolution provisions in credit card agreements. The study will be conducted in English and Spanish and include both residential landlines and cellphones

. 3 Participation will be voluntary

.

1 Part B of this Supporting Statement provides a more detailed discussion of the survey’s key estimates, including the required precision. Similarly, Appendix B describes how each proposed survey question relates to the key survey estimates.

2 The survey will focus on general purpose “bank” credit cards (including co

- branded cards) and exclude proprietary credit cards.

3 Bilingual surveys and the use of both landlines and cellphones are intended to mitigate potential
biases due to non

- response and noncove rage of the sampling frame.2 The survey will help the CFPB meet its obligations under Section 1028 (a) of the
Dodd Frank Act to conduct a study of, and provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between entities offering or providing certain consumer financial products or services (“ c overed p ersons”) , on the on e hand, and consumers, on the other hand, in connection with the offering or providing of consumer financial products or services.

The CFPB is t he sole proposed potential user, but data from the survey will be publicly available in at least aggregate fo rm. The CFPB is contemplating release of survey microdata, after taking appropriate disclosure protections, such as collapsing response cells and not returning specific variables (such as the identity of

respo ndents’ credit card providers).

Although the C FPB’s overall study of mandatory arbitration provisions will extend

to multiple product markets, the proposed telephone consumer survey will be
limited to credit cards. This is because credit cards offer strong penetration amongst
consumers across the nation

. ( I n 2009, the U.S. Census estimated that 160 million Americans would own credit cards by 2012

. ) Also , limiting the study to credit cards
allows the CFPB to verify the accuracy of consumers’ default assumption s regarding their dispute resolution rig hts, b y consulting the agreements of the entities identified by the consumers as their credit cards’ issuing banks.

The CFPB proposes that the survey sample will be selected through random

- digit dialing of residential and cellular telephones, rather than an Internet

- based survey. Certain of the survey’s primary estimates relate to consumers’ awareness of their contract rights with their credit card issuers. Unlike an Internet

- based or mailed survey, a telephone call requires real

- time interaction, which m inimizes the possibility that respondents will supplement their knowledge before responding to survey questions by searching the Internet or reviewing their credit card
agreements.

The key estimate s to be derived from the survey are:

• The percentage of c redit card users that compare multiple credit cards (e.g., comparison shop) before acquiring a credit card;

• The percentage of credit card users that volunteer in response to an open

ended query that dispute resolution provisions 4 were a consideration when acquiring a credit card;

4 This submission uses the term “dispute resolution provisions” to reference contractual provisions that address formal dispute resolution options. This would include agreements providing for arbitration of future disputes, of ten referred to as “mandatory pre

- dispute arbitration agreements.”3 • The percentage of credit card users that state that dispute resolution provisions were a consideration when acquiring a credit card after specifically being queried abou t di spute resolution provisions and seven other factors;

• Relative tiers of importance of the credit card features that consumers identify as being relevant to their card acquisition decisions, drawn f rom the aforementioned open and closed

- set queries;

• The percentage of credit card users that affirmatively volun teer in response
to an open

- ended query that they would consider bringing formal claims against their credit card issuers (i.e., filing a complaint in small claims court; consulting a lawyer regarding state or federal litigation; or filing a notice of
arbi tration) after exhausting informal dispute resolution options ;

• Consumers’ default assumption s regarding their dispute resolution rights (i.e., do they believe they have a right to have claims adjudicated by a judge or jury when they may, in fact, be subject to a mandatory arbitration provision);

• The accuracy of consumers’ default assumption s regarding their dispute resolution rights;

• Consumers’ awareness of mandatory predispute arbitration as a means of resolving disputes. 5

The CFPB proposes usin g p robability sampling to obtain approximately 1,000 respondents aged 18 or older . B ased on an expected response rate of 15

- 20 % , the CFPB proposes s creening roughly 7 ,000 individuals with credit cards in order to reach the 1,000 respondent sample . The sample will be selected to provide broad geographic coverage of the United States. The observable demographic characteristics and information about measured differences across respondents will be used to construct sample weights so that estimates fro m the survey are representative of the overall U.S. population

. The CFPB anticipates a n estimation
error of +/

- 3.1% for most of the survey questions.

The CFPB has retained ICF International to assist with administration of the telephone survey, should OM B approve this proposal. As described herein, ICF

The term does not encompass informal dispute resolution options, such as customer service telephone help lines or covered persons’ internal complaint

- reporting functions.

5 Part B of this Supporting Statement provides a more detailed discussion of the survey’s key estimates, including the required precision. Similarly, Appendix B describes how each proposed survey question relates to the key survey estimates.4 International assisted with this submission to OMB, including conducting consumer focus group testing and user testing reflected in OMB Control No. 3170

- 024.

This proposal reflects extensive revisions comp iling learnings from the engagement
of ICF International ; review of nearly two

- dozen written comments; two consultation rounds with interested parties representing both financial service organizations and consumer groups; focus group testing with two sets of consumer panels ; and extensive user testing.

2. U se of the Information

The results of the survey will ultimately be communicated to the public as part of the CFPB’s Dodd Frank Section 1028(a) report to Congress, to ensure an equivalent, timely release.

In that regard, Section 1028(a) of the Dodd Frank Act states that the CFPB “shall conduct a study of, and shall provide a report to Congress concerning, the use of agreements providing for arbitration of any future dispute between covere d persons and consumers in connection with the offering or providing of consumer financial products or services.”

Section 1028(b) establishes further CFPB authority, stating that the Bureau “by regulation, may prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or
l imitations is in the public interest and for the protection of consumers.” The section specifies that “[t]he findings in such rule shall be consistent with the study conducted under subsection (a).”

The CFPB’s 1028(a) report will, among other topics, prov ide a detailed discussion of the survey’s findings and methods. The CFPB will endeavor to provide survey documentation that will allow the public to understand how to properly analyze data from the survey, as well as evaluate and potentially recreate each key estimate. The report will also provide an evaluation of the quality of the data and areas for potential improvement.

3. U se of Information Technology

ICF International will collect d ata electronically through the use of computer

assisted telephone interviewin g software. Such software will help reduce errors by:

• Providing uniform question sequenc ing ;5 • Automatically skipping questions , where appropriate, based on prior answers to question s ;

• Randomizing how certain questions , or groups of qu estions, are presented ;

• Ensuring that some questions cannot be skipped; and

• Rejecting invalid responses or data entries

.

Additionally, the contractor may collect data on the length of interviews, measures of the effectiveness of specific interviewers, and unit and item non - response rates. This type of information can be used to impro ve the data collection process.

4. E fforts to Identify Duplication

The proposed consumer survey will not duplicate empirical research that the CFPB
has identified to date. In that regard, t he CFPB has been unable to identify prior empirical studies exploring the role of dispute resolution provisions in consumer

cre dit card acquisition decisions or consumer default assumption s regarding their dispute resolution rights vis

- à

- v is their credit card issuers.

Regarding card acquisition, t he closest comparison the CFPB has identified is a September 2011 re port by Mercator Advisory Group, which explore d consumer credit card acquisition decisions, but did not report on dispute resol ution provisions as a potential factor. 6 Mercator fielded an Internet

- based consumer survey of approximately 1,000 adults

. Mercator’s survey asked consumers to identify “One Main Reason for Selecting Credit Card at Last Application.” “ D ispute resolution

p rovisions/rights” was not included in the fourteen reported measures. “Some Other
Reason

, ” which would likely subsume such concerns, was the third

- largest category for applications made with in the last year, trailing only rewards and “no annual fee” (“Some Other Reason” tied for second

- largest category for selection criteria relating to applications prior than a year old ). Mercator’s survey also asked consumers to identify the “Most Important Reason for Selecting Credit Card To Use The Most.” Again, “dispute resolution provisions/rights” was not included in the twelve reported measures. But again, “Some Other Reason” was one of the largest categories

– fourth for applications within the year, third for applications from prior

years

.

Theoretically, empirical work regarding consumer awareness of arbitration provisions could inform the proposed survey’s exploration of how those provisions factor into consumers’ credit card acquisition decisions

, as well as co nsumers’ default assumption s. The arbitration

- awareness research identified to date by the CFPB, however, does not extend to the issues the CFPB seeks to estimate. T he majority of prior awareness research focuses on whether consumer s read con tracts

6 U.S. Credit Cardholders: W aiting for a Rebound , Mercator Advisory Group (Sept. 2011) (CustomerMonitor Survey Series, Insight summary Report Vol. 3, Report 1).6 generally. Such research largely has not specifically focused on consumer awareness of arbitration provisions , which are frequently formatted differently than the rest of
the consumer contract

. In that regard, courts that have enforced arbitration

a greements frequently observe th at arbitration provisions may be subject to different formatting (e.g., typeface, font size, bold, or underlining) than other contractual provisions. 7

The awareness studies that do focus on arbitration provisions generally do not focus on consumer financial products and services, much less credit cards. 8 Further, many of the se studies were too limited in size or geographic diversity to draw conclusions about the country as a whole. 9 For example:

• In 2009, the Employee Right s Advocacy Institute for Law & Policy and Public Citizen conducted a nationwide survey of 800 voters, which explored the respondents’ awareness of the existence of arbitration provisions in their employment agreements and certain agreements for goods and s ervices. 10 In particular, the study polled respondents about their expectations regarding

7 See

, e.g. , Murea v. Pulte Group, Inc. , 2014

- Ohio

- 398 (Ct. App. Ohio Feb. 6, 2014) (“The arbitration provisions in both agreements were clearly marked in capital letters. The arbitration clause in the purchase agreement as conspicuously written in bold print, and the signature line of the agreement expressly warned Murea to ‘make sure that all provisions are read and unders tood before signing.’”). Forest Hill Nursing Ctr., Inc. v. McFarlan , 995 So. 2d 775, 785 (Miss. Ct. App. 2008) (noting bold, all capital letters); Lorene Park, Be loud, clear, and fair in arbitration provisions or be prepared to litigate , Released Aug. 7, 2012 available at http://www.employmentlawdaily.com/index.php/2012/08/07/be

- loud

- clear

- and

- fair

- in

- arbitratio n provisions

- or - be

- prepared

- to

- litigate (advising employers feature arbitration agreements in a separate document, or at least in its own paragraph set off with spacing, and to “[u]se a 12

- point font or larger; and use a bold, underlined, and capitalized h eading that includes the words “ Arbitration Agreement .”) (emphasis in original).

8 See

, e.g. , Yannis Bakos et al., Does Anyone Read the Fine Print? Testing a Law and Economics Approach to Standard Form Contracts 1

- 26 , N.Y.U. Law & Econ. Research Paper Series, Working Paper No. 09

- 04, 2009 (studying on

- line browsing habits of 45,091 households relating to online software merchants).

9 See

, e.g., Amy Schmitz, Access to Consumer Remedies in the Squeaky Wheel System , 39 Pepperdine L. Rev. 279

- 366 (2012) (describing panel of 306 Colorado consumers); Shmuel I. Becher & Esther Unger

- Aviram, The Law of Standard Form Contracts: Misguided Intuitions and Suggestions
for Reconstruction , 8 DePaul Bus. & Com. L.J. 199 (2010) (surveying 147 consumers); Debra Pogrund Stark & Jessica M. Choplin, A License to Deceive: Enforcing Contractual Myths Despite Consumer Realities, 5 N.Y.U. J.L. & Bus. 617, 619

- 23 (2000) (surveying 91 students fulfilling a course requirement; 106 approached in a public location; and 101 law stud ents).

10 See

, e.g., National Study of Public Attitudes on Forced Arbitration: Findings from a Survey of 800 Likely 2010 Voters Nationwide . The Employee Rights Advocacy Institute for Law & Policy and Public Citizen. Released 04/09 (research funded by the Public Welfare Foundation) available at http://www.citizen.org/documents/lake

- research

- national

- study

- of

- public

- attitudes

- forced

arbitra tion.pdf

.7 their ability to sue their employers in court as well as whether the respondents recalled executing mandatory arbitration provisions in terms of employment or terms of agreements for goods and services. The study, however, did not discuss the use of arbitration provisions in connection with the offering or providing of consumer financial products or services.

• In contrast, the Pew Charitable Trusts focused on checking accounts in its 2012 survey of 603 consumers. 11 The study, however, did not describe data or survey questions relating to the extent of consumer awareness of arbitration provisions. 12 It similarly did not discuss how consumers weighed dispute resolution prov isions when evaluating financial products. Instead, the stud y focused on (a ) the prevalence of arbitration provisions in the account agreements of the largest 100 retail banks and credit unions by deposit volume and (b ) consumers’ preferences after they we re presented with possible features of arbitration provisions or contrasting statements about arbitration provisions.

• In 2003, the Institute for Advanced Dispute Resolution surveyed 1,036 Americans, seeking information about consumer awareness and prefere nces regarding arbitration provisions. The survey, however, focused on respondents’ perspectives regarding voluntary arbitration proceedings, rather than arbitration proceedings that were required under pre

- dispute contracts. And it has not been updated in ten years. There is significant controversy regarding whether the Institute for Advanced Dispute Resolution was or was not an arbitration advocacy organization. 13

• And in 2008, the Center for Responsible Lending commissioned a study from
Macro Internatio nal as part of its regular CARAVAN® survey. The survey was conducted among a national probability sample of 1,007 adults, concluding that 68% of consumers that financed cars from dealerships were
unaware if their contract had a “forced arbitration” clause after the clause

11 Banking on Arbitration: Big Banks, Consumers, and Checking Account Dispute Resolution . The
Pew Charitable Trusts. Released 11/26/12 available at http://www.pewstates.org/uploadedFiles/PCS_Assets/2012/Pew_arbitration_report.pdf

.

12 The Pew study references a lack of consumer awareness regarding dispute r esolution provisions, but stops short of discussing the data underlying any such inquiry. (“Pew found that many consumers are unaware that account agreements restrict their options if they have a dispute with their financial institution.”) It similarly doe s not detail particular questions relating to such an inquiry.

13 Roper ASW, 2003 Legal Dispute Study: Institute for Advanced Dispute Resolution (2003) cited in Public Citizen, The Arbitration Debate Trap , at 20

- 22 (2008) (discussing controversy) availabl e at http://www.citizen.org/documents/ArbitrationDebateTrap(Final).pdf . Also, the study focused on arbitration provisions generally, as opposed to the financial sector.8 was described to them. The study, however, did not list the questions used in the survey. Further, while the survey featured over a thousand respondents, only 27% of the survey population used a loan at a dealership to purchase a

car or tr uck. Accordingly, the sample size for the arbitration awareness

ques tions was only 268 respondents. 14

While there is a significant volume of other arbitration

- focused empirical work, it does not duplicate the proposed survey’s estimates: how dispute resol ution rights factor into consumers’ credit card acquisition decisions and consumers’ default assumption s regarding their ability to sue the credit card issuer in a court of law. For example, o ther empirical studies , including the CFPB’s own release of prel iminary results relating to its overall study of arbitration provisions, have
studied the prevalence of arbitration provisions in various types of markets

. 15 Other

14 J oshua M. Frank, Center for Responsible Lending, Stacked Deck: A Statistical Analysis of Forced
Arbitration (2009) available at http://www.responsiblelending.o rg/credit

- cards/research

analysis/stacked_deck.pdf

.

Further, the Center for Responsible Lending could not verify whether consumers’ recollections about the presence of arbitration agreements was correct. They found that 17% of respondents said that
there was never an arbitration clause in their auto loan agreement. The Center for Responsible Lending relied on “[c]onversations with experts familiar with these contracts suggest that many of the people who thought there was no arbitration in their contract li kely were mistaken.” In so doing, the Center for Responsible Lending assumes that the full 17% was mistaken (an assumption that was used in certain regression analyses). In contrast, the CFPB will be able to look to relevant bank customer agreements, avail able independent of the respondents, to verify the accuracy of consumers’ perceptions.

15 See, e.g., Consumer Financial Protection Bureau, Arbitration Study: Preliminary Results (Dec. 2013) available at : http://files.consumerfinance.gov/f/201312_cfpb_arbitration

- study

- preliminary

results.pdf ; Checks and Balances 2014 Update . The Pew Charitable Trusts. Re leased 04/09/2014
available at http://www.pewstates.org/uploadedFiles/PCS/Content

Level_Pages/Reports/2014/Checks

- and

- Balances

- R eport

- 2014.pdf .; Christopher R. Drahozal & Peter B. Rutledge, “Contract and Choice,” 2013 B.Y.U. L. Rev. 1 (2013) (studying the prevalence of arbitration agreements in credit card agreements); Michael L. Rustad, An Empirical Study of Predispute Mandatory A rbitration Clauses in Social Media Terms of Service Agreements , 34 U. Ark. Little Rock L. Rev. 643 (2012) available at http://ualr.edu/lawreview/files/2013/01/Rustad

- Normal.pdf (stud ying the prevalence of arbitration agreements in social media service agreements and privacy terms); Christopher R. Drahozal & Quentin R. Wittrock, Is There a Flight from Arbitration? , 37 Hofstra L. Rev. 71, 90

- 94 (2008) (studying the prevalence of arbitra tion agreements franchise agreements); Theodore Eisenberg, Geoffrey P. Miller & Emily Sherwin, Arbitration’s Summer Soldiers: An Empirical Study of Arbitration Clauses in Consumer and Nonconsumer Contracts (2008), available at http://lsr.nellco.org/nyu_lewp/136 ; Florencia Marotta

- Wurgler, “Unfair” Dispute Resolution Clauses: Much Ado About Nothing?, in Boilerplate: The Foundation of Market Contracts 45, 47

- 48 (Omri Ben

- Shahar ed., 2007) (studying the preval ence of arbitration agreements in end

user software license agreements); Linda J. Demaine & Deborah R. Hensler, “Volunteering” to Arbitration Through Predispute Arbitration Clauses: The Average Consumer Experience , 67 Law & Contemp. Probs. 55, 73

- 74 (2004) (studying the prevalence of arbitration agreements in consumer contracts, generally); Elizabeth Rolph, Erik Moller & John E. Rolph, Arbitration Agreements in Health Care: Myths and Reality , 60 Law & Contemp. Probs. 153, 171 (1997) (studying the prevalence of arbitration agreements relating to California physicians and hospitals).9 studies have explored arbitration outcomes

, measuring consumer satisfaction after a dispute 16 or the likelihood that consumers will achieve success in an arbitration proceeding

, taking into consideration both win rates and award sizes

. 17

The CFPB will continue to monitor empirical research and related work by Federal regulatory agencies and other researchers t o ensure that the CFPB’s research techniques reflect the current knowledge and best practices. 18

16 Arbitration: Simpler, Cheaper, and Faster than Litigation , Harris Interactive Survey, conducted for U.S. Chamber Institute for Legal Reform (Apr. 2005), available at http: http://www.adrforum.com/rcontrol/documents/researchstudiesandstatistics/2005harrispoll.pdf (19% of survey respondents had entered arbitration proceeding s because they were required by contract; the other 81% voluntarily opted into the arbitration proceedings); Outcomes in Arbitration: An Empirical Study of Consumer Lending Cases , Ernst & Young (2004) (studying outcomes in 226 by

the National Arbitration F orum in lending

- related consumer

- initiated cases).

Other studies have looked to consumer satisfaction in specific types of arbitration proceedings. See,

e.g., Gary Tidwell, Kevin Foster & Michael Hummel, Party Evaluation of Arbitrators: An Analysis of
Da ta Collected from NASD Regulation Arbitrations 3 (1999) cited in Michael Perino, Report to the Securities Exchange Commission Regarding Arbitrator Conflict Disclosure Requirements in NASD
and NYSE Securities Arbitrations (2002), available at http://www.se c.gov/pdf/arbconflict.pdf (describing substantial level of satisfaction amongst respondents, but cautioning that findings were limited by a response rate of just 10

- 20%, which may reflect selection bias problems).

17 See

, e.g. , Alexander J.S. Colvin, An E mpirical Study of Employment Arbitration: Case Outcomes
and Processes , 8 J. Empirical Legal Stud. 1 (2011); Christopher R. Drahozal & Samantha Zyontz,

Creditor Claims in Arbitration and in Court , 7 Hastings Bus. L.J.77 (2011) (comparing the outcomes of debt collection cases brought by creditors in arbitration as compared to outcomes of debt collection cases brought in court); Christopher R. Drahozal & Samantha Zyontz, An Empirical Study of AAA
Co nsumer Arbitration , 25 Ohio St. J. on Disp. Resol. 843 (2010) (summarizing prior empirical work and discussing the results of a study of 301 consumer arbitrations administered by the American Arbitration Association in 2007); Peter B. Rutledge , Whither Arb itration? , 6 Geo. J.L. & Pub. Pol’y 549 (2008) (summarizing prior empirical work); Alexander J.S. Colvin, Empirical Research on Employment Arbitration: Clarity Amidst the Sound and Fury?

, 11 Employee Rts. & Employment Pol’y J. 405, 418 (2007); Mark Fellow s, The Same Result as in Court, More Efficiently: Comparing Arbitration and Court Litigation Outcomes , 14 Metropolitan Corp. Counsel 32 (2006) (study conducted by legal counsel for National Arbitration Forum, regarding 2003

- 2004 National
Arbitration Forum consumer arbitration awards from California) available at http://www.metrocorpcounsel.com/articles/6988/sam e - result

- court

- more - efficiently

- comparing

arbitration

- and

- court

- litigation

- outcomes ; Lisa B. Bingham & Shimon Sarraf, Employment Arbitration Before and After the Due Process Protocol for Mediation and Arbitration of Statutory Disputes Arising Out of Employ ment: Preliminary Evidence that Self

- Regulation Makes a
Difference , in Alternative Dispute Resolution in the Employment Arena: Proceedings of the New York University 53 rd Annual Conference on Labor 303, 320

- 28 (Samuel Estreicher & David Sherwyn eds. 2004); Michael Delikat & Morris Kleiner, Comparing Litigation and Arbitration of Employment Disputes: Do Claimants Better Vindicate Their Rights in Litigation?, 6 A.B.A. Litig. Sec. Conflict Mgmt. 1, 10 (2003); Theodore Eisenberg & Elizabeth Hill, Arbitration an d Litigation of Employment Claims: An Empirical Comparison , 58 Disp. Resol. J. 44, 48 (Nov. 2003

- Jan. 2004); Elizabeth Hill, Due Process at Low Cost: An Empirical Study of Employment Arbitration Under the Auspices of the
American Arbitration Association , 1 8 Ohio St. J. Disp. Resol. 777, 806 (2003).10 5. E fforts to Minimize Burdens on Small Entities

The data collection will not burden small entities because the survey will only
collect information from individuals

. 19

6. C onsequences of Less Frequent Collection and Obstacles to Burden
Reduction

Each surveyed individual will only participate once

.

If the survey was not implem ented

, the CFPB would be limited in its ability to provide an analysis of how dispute resolution provisions are used in connection with the offering or providing of financial products or services to consumers. For example, to the extent that CFPB intends t o study the consumer experience with arbitration, first

- order questions would include whether consumers even know whether they are in an arbitration environment and, if so, whether they made a conscious decision to be subject to arbitration requirements

.

7. C ircumstances Requiring Special Information Collection

No special circumstances require the collection to be conducted in a manner inconsistent with the guidelines s e t forth in 5 C.F.R. 1320. 5(d)(2)

.

8. C onsultation with Individuals Outside of the Agency on Availability of Data, Frequency of Data, Frequency of Collection, Clarity of Instructions and Forms, and Data Elements

On April 27, 2012, the CFPB made a “Request for Information Regarding Scope, Methods, and Data Sources for Conducting Study of Pre

- Dispute Arbitration Agreements.” (77 F.R. 82.) The CFPB received over sixty comment letters in

response.

Certain commentators suggested that the CFPB focus on consume r satisfaction after resolving a dispute in arbitration . The CFPB, however, does no t propose that

18 The Information Collection Request Search Tool maintained by the OMB’s Office of Information and Regulatory Affairs returned only one document in response to an April 11, 2014 search for “arbitration survey.” Available at https://www.reginfo.gov . That document, OMB Control No. 3170

- 024, was a reference to the CFPB’s submission to OMB regarding the use of focus groups and usability testing relating to this proposed teleph one survey.

19 Given that the finances of small businesses are often intertwined with their owners, the survey instrument will instruct respondents to exclude cards used primarily for business purposes when responding to survey questions about credit card use.11 the survey include such an exploration. Such research would ideally be conducted with consumers that had personal experience with both litigation and arbitration, but as many commentators highlighted, this would be a very small sample set. 20 (As the U.S. Chamber of Commerce later noted in a comment letter to OMB relating to this proposal

, “[v]anishingly few respondents will have sufficient background information to assess the comparative merits of arbitration and litigation, because
it is hi ghly unlikely that more than a very few individual respondents will have had the experience of pursuing similar disputes in each forum. . . . .And the number of respondents with experience concerning both arbitration and litigation is likely to
be extremel y small

– indeed , it is likely to be zero.”) (emphasis in original )

. 21

C ommentators also made a number of other suggestions, including that the CFPB

assess consumer awareness and understanding regarding dispute resolution provisions. 22 By probing consumers’ default assumption s regarding their dispute resolution rights, the proposed survey would provide data relevant to consumer awareness and understanding.

On June 7, 2013 , the CFPB published a Federal Register Notice which notified the public of the CFPB’s intent to collect this survey, and provided a 60

- day comment period (Vol. 78 , No. 110, Page 34352)

. The Federal Register Notice also included a draft proposed survey (the “Initial Questionnaire”) , which included more questions
than the current proposal , exploring additional estimates than the version included
in this submission such as estimates of consumer valuation and perception of transaction costs relating to dispute resolution alternatives . The draft was included to help facilitat e discussion and frame the ultimate su rvey, but made clear that the

20 From 2010 to 2012, there were approximately 344 arbitration filings a year with the American Arbitration Association regarding credit card issues. Consumer Financial Protection Bureau, Arbitration Study: Preliminary Results (Dec. 2013 ) available a t

: http://files.consumerfinance.gov/f/201312_cfpb_arbitration

- study

- preliminary

- results.pdf . Not all of the filings proceeded to adjudication by an ar bitrator.

21 (U.S. Chamber of Commerce, Aug. 6, 2013, pp. 10, 16.)

22 Professor Alexander J.S. Colvin, ILR School, Cornell University (also suggesting that the CFPB assess satisfaction); June 22, 2012 letter from American Financial Services Association (a mong numerous suggestions, suggesting that the CFPB examine how well

- informed consumers are regarding the benefits of arbitration programs); June 23, 2012 letter from Jill I. Gross, Pace University School of Law (“For the consumer

- level study, researchers should survey consumers’ perceptions of fairness of arbitration clauses of sample companies as well as perceptions of fairness of the arbitration process with those companies . . . . “); June 22, 2012 letter from MFY Legal Services (among other suggestions , “[t]he CFPB should survey consumer knowledge about arbitration clauses and how arbitration works. Do consumers understand what it means to sign an arbitration clause?”); June 23, 2012 letter from National Association of Consumer Advocates and The

Nationa l Consumer Law Center (“The CFPB should also study why consumers may be passing on available arbitration options. For example, the CFPB should examine how well

- informed consumers are as to the benefits of a fairly designed and administered arbitration prog ram.”).12 CFPB expected to revise the questionnaire “based on the experience and knowledge of the contractor, comments from the public notice process, cognitive testing, and pretesting of the survey questions.” Further, in accordance with 5 CFR 1320.5(a)(1)(iv), the Bureau has published a notice in the Federal Register allowing the public 30 days to comment on the submission of this information collection request to the Office of Management and Budge t.

Consultation with Individuals Outside of the Agency , July 2013

On July 8, midway through the 60

- day comment period, the CFPB hosted two
roundtables seeking consultation with individuals outside of the agency regarding the proposed survey. Meeting part icipants included leading business federations, banking trade associations, and non

- profit consumer advocacy organizations.

In each session, the CFPB described the estimates it sought to obtain from the proposed survey and responded to questions from the participants. Among other suggestions, one participant suggested that the CFPB include a “closed ended” question to probe consumer knowledge of arbitration provisions, rather than an

open - ended question (which is reflected in the revised proposed script in Appendix
A

). Many commentators raised concerns about the length and complexity of the proposed survey ; questions seeking answers to hypothetical scenarios were a particular focus of these stated concerns

. Certain commentators also q uestioned whether consumers had sufficient knowledge of dispute resolution provisions to either (a) estimate the amount of money they would spend to obtain the dispute resolution rights that they preferred; or (b) estimate how much they would need to
be ha rmed before initiating an arbitration or litigation or participate in a class action litigation. As discussed below

, the questions relating to those issues

– Questions 8 and 11 in the Initial Questionnaire

– have been st ricken from the proposed survey, whi ch has been shortened and otherwise simplified.

Comments Received in R esponse to 60

- Day Notice

The CFPB received approximately twenty

- two response s regarding its 60

- Day
Notice.

Commentators included:

• The American Bankers Association (together with Consumer Banker Association and the Financial Services Roundtable, the “ABA Commentators”);

• Americans for Financial Reform; Center for Justice and Democracy;
Consumer Action; Consumer Federation of America; Consumers for Auto Reliability and Safety; Citizen Works; D.C. Consumer Rights Coalition; Homeowners Against Deficient Dwellings; National Association of Consumer13 Advocates; National Consumer Law Center (on behalf of its low income clients); National Consu mers League; Public Citizen; U.S. PIRG; and Workplace Fairness;

• t he American Financial Services Association (“AFSA”) ;

• the Credit Union National Association;

• Thomas Durkin;

• Jennifer Lee;

• Alessandro Machi (three comments);

• the Michigan Credit Union League and Affiliates;

• the Missouri Credit Union Association;

• National Association of Consumer Advocates and the National Consumer Law Center, on behalf of its low income clients;

• Kenneth Sheehan;

• Donna Shestowsky and Nancy Welsh (two sets of joint comments) ;

• Public Justice; and

• The U.S. Chamber of Commerce

.

Certain commentators ( e.g ., t he ABA Commentators, AFSA, and the U.S. Chamber
of Commerce ) expressed that the Bureau should not proceed with the survey. Many of their concerns, however, related to concerns about the Bureau’s overall study of mandatory arbitration st udies ( the proposed survey is just one of many different
parts of the overall study)

.

T he ABA Commentators , for example, stated that “the Bureau’s information collection should be focused on a comprehensive review of the disputes that may arise about consumer financial services and how they can be resolved.” (ABA Commentators, Aug. 6, 2013). The United States Chamber of Com merce similarly asserted that the Bureau should study issues outside of the survey, such as the nature of consumer claims, outcomes in arbitration versus litigation, class proceedings (which they also frame d as “trade

- offs”) , cost burdens and accessibility of arbitration and litigation, and post

- dispute arbitration. (U.S. Chamber of Commerce, Aug. 6, 2013, pp. 3

- 4).

The CFPB has made clear that it is addressing several, if not all, of these other lines of inquiry in its overall study of mandatory arbitrat ion provisions

. In that regard, the Bureau released preliminary results relating to its study of mandatory arbitration provisions in December 2013

. 23 The Bureau’s preliminary results included, among other things, a typology of consumer disputes filed with t he primary arbitration services provider for consumer financial products, the American
Arbitration Association , relating to consumer credit card, checking account, and

23 Consumer Financial Protection Bureau, Arbitration Study: Preliminary Results (Dec. 2013)

available at : http://files.consumerfinance.gov/f/201312_cfpb_arbitration

- study

- preliminary

results.pdf

.14 payday loan issues

. The Bureau reported several data points, including the number
of fil ings relating to each type of product , the legal claims that they cover, claim amounts, initial fee assessments, whether the parties were represented by counsel, and the demographic distributions of the zip codes relating to consumers in those arbitrations. The Bureau explained that it intends to address the “back

- end” of formal disputes in subsequent work: what happens to claims, how long proceedings take to resolve, and at what cost. The Bureau highlighted that its future work will
include a r eview of filings in certain federal courts and, where possible, selected state courts. It also explained that it intends to study consumer class actions

, including attempting to assess consumer benefits and transaction costs in consumer
class actions invol ving consumer financial services. And, t he Bureau stated that it will attempt to analyze whether consumer financial class actions exert improper pressure on defendants to settle meritless claims. Accordingly, ma ny of the concerns
raised in commentators’ re sponses relating to the proposed survey have already been addressed by the release of the preliminary results or will be addressed with
the future work described therein.

Other commentators asked that the Bureau be mindful of increasing regulatory burdens to credit unions. For example, t he Credit Union National Association expressed that it had no “formal objections to a survey by the CFPB,” but asked that
the Bureau be sensitive to the burden to credit unions posed by the inquiry

. (Credit Union National Association, Aug. 2, 2013.) Likewise, the Missouri Credit Union
Association stated that it “recommends that the CFPB seek to determine consumers’ understanding of dispute resolution, particularly a rbitration, while at the same time requesting that the CFPB be cognizant of tremendous regulatory burdens that credit unions are already facing.” (Missouri Credit Union Association, Aug. 6, 2013.) C.f., (Michigan Credit Union League & Affiliates, Aug. 6, 2013) (“As an industry, credit unions continue to feel the burden of significant compliance costs for new regulations that are in response to actions they were not a party to.”) The CFPB is cognizant of the concerns raised by credit un ion commentators and will be mindful of the differences they have raised when analyzing and presenting data

. For example, t he Bureau highlighted the distinction between credit unions and other types of credit card issuers in its release of the preliminary results of the arbitration study, noting that only nine of the 275 agreements it studied relating to credit cards issued by credit unions contained arbitration provisions

– just 3.3% compared to approximately 58% of large bank issuers. 24

As referenced abo ve, certain commentators raised concerns about Questions 8 and 11 on the Initial Questionnaire, wh ich explored (a) how much consumers would need to be harmed before initiating an arbitration or litigation or participating in a class action litigation ; or (b) the amount of money they would spend to obtain the

24 Consumer Financial Protection Bureau, Arbitration Study: Preliminary Results (Dec. 2013 )

available at : http://files.consumerfinance.gov/f/201312_cfpb_arbitration

- study

- preliminary

results.pdf

.15 dispute resolution rights that they preferred. The U.S. Chamber of Commerce highlighted what it described as the primary tension inherent in the estimate s

. Without providing a description of arbit ration and a description of litigation, “consumers are unlikely to provide anything but an un

- , or at a minimum, under

informed guess.” On the other hand, “[a]ny such description would to a very significant degree influence consumers’ answers (because it w ould be their sole source of information) and therefore produce wholly unreliable results.” (U.S. Chamber of Commerce, Aug. 6, 2013 p.18.) T he ABA Commentators similarly expressed that consumers would lack sufficient information to make meaningful

assessme nts or comparisons about arbitration or litigation unless they had been involved in either. (ABA Commentators, Aug. 6, 2013) (focusing on form er Question 11, in particular). 25 The Michigan C redit Union League & Affiliates, as well as
individual commentator Thomas Durkin, similarly raised concerns about Questions
8 and 11 in the Initial Questionnaire , which they describe as asking consumers to answer a hypothetical question. As mentioned a bove, those questions

– former Q uestions 8 and 11

– have since been str icken from the proposed survey.

A few commentators argued that the results of the proposed survey ’s questions regarding card acquisition and default assumption s were predictable. None of these commentators, however, identified specific empirical work that had not already been considered by the Bureau that would potentially duplicate the proposed case
work. Instead, the co mmentators cite to general studies of contract terms

. Had these commentators raised specific studies that would be duplicative of t he specific inquiries regarding consumer credit card acquisition decisions and default assumption s, the CFPB would have closely reviewed the studies in the course of the other works referenced herein. But, after a 60

- day comment period and two sets of
in

- p erson meetings with many of the commentators, the CFPB has not i dentified any such prior work.

In particular, t he Bureau submits that general studies regarding consumer contract

terms may not apply to arbitration provisions , which are frequently formatted specifically to draw consumers’ attention to them. As described above, and in the Bureau’s original OMB submission, arbitration agreements are frequently highlighted in headers at the top of consumer agreements. And, in the body of the
consumer agreements , they are often set aside in their own paragraphs and emphasized with larger font sizes and text that is bolded, underlined, or both. At the same time, arbitration agreements describe complex issues that may be difficult
for consumers to understand. In th at regard, the Bureau’s December 2013

25 The U.S. Chamber of Commerce also agreed that “[v]anishingly few respondents will have sufficient background information to assess the comparative merits of arbitration and litigation, because it is highly unlikely that more than a very few individual respondents will have had the experience of pursuing similar disp utes in each forum.” (U.S. Chamber of Commerce, Aug. 6, 2013, p. 10, 16) (“And the number of respondents with experience concerning both arbitration and litigation is likely to be extremely small

– indeed, it is likely to be zero.”) (emphasis in original).16 preliminary results found that arbitration clauses are generally more complex and written at a higher grade level than other provisions in the same contracts, using the Flesch readability score (a widely used standard in plain language analysis). Accordingly, arbitration agreements have relatively unique characteristics that may impact consumers’ ability to identify them, on the one hand, but also to understand
them , on the other

.

Many commentators raised concerns about the length and complexity of the proposed survey. The revised survey is significantly streamlined, compared to the original proposal. While responsive to commentator suggestions, streamlining of the original proposal was included in the design of the survey. T he proposed survey was intentionally broad and released without the contributions of the survey consultants retained by the CFPB. Focusing solely on question text read to consumers (not including demographic question s, which were not included in the Initial Questionnaire), the Initial Questionnaire had a Flesch readability score of approximately 68 and a n eighth grade level, respectively. 26 Focusing similarly on

non - demographic question text read to consumers, t he new draft has about one

third fewer words , with approximately a 78 readability score and a sixth grade
level. 27

Consultation with Individuals Outside of the Agency, March 2014

On March 11 and 12, 2014, the CFPB met individuals outside of the agency in three additional meetings regarding the proposed survey. Meeting participants again included leading business federations, banking trade associations, and non

- profit consumer advocacy organizations.

The CFPB discussed a revised approach to the Initial Questionn aire, informed by two focus group panels held by ICF International on February 18. The CFPB explained that it would be proceeding with user

- testing of a revised survey instrument shortly after the meetings and would incorporate feedback from the
consultati on in the version of the survey that would be tested.

Commentators again discussed proposed survey questions concerning consumers’ perceptions of the relative transaction cost s of various types of dispute resolution. Many commentators raised concerns about the hypothetical nature of such question s . As discussed above, question s exploring relative transaction cost s have

26 The Flesch readability score ranges from 0.0 to 100.0, with a higher number indicating greater readability. With respect to grade level, on the other hand, a lower level indicates greater readability.

27 These comments are referenced as examples only and should not be construed as an exhaustive list of the comments considered by the CFPB in revising the proposed survey. The CFPB considered many other specific comments, as well as other factors such as focus group testing and user testing, when revising the proposed survey.17 since been stricken from the proposed survey. Other commenta tors raised questions
about whether the results of the survey were predictable

. As discussed above, no commentator has identified a study or other empirical work that indicates that the survey’s exploration of dispute resolution provisions in consumer card acquisition
decisions or default assumption s regarding dispute resolution are, in fact, predictable

– particularly in light of the special formatting often used for dispute resolution provisions or the CFPB’s recent data indicating the differences in
read ability of the provisions, compared to the rest of consumers’ credit card
agreements.

9. P ayment or Gifts to Respondents

No payment or gifts will be offered to participants in the proposed survey.

10. A ssurance of Confidentiality

In the survey’s introduction, respondents will be told about the study’s purpose, the authority under which the data are being collected, that cooperation is voluntary,
and that direct identifying information will not be provided to the CFPB or to any
othe r party

. 28 Respondents will be informed by both the pre

- notification letter and the introduction to the survey that their response will be kept private except where required by law

.

At the completion of the data collection, each respondent’s telephone number will be separated from the answers to the survey questionnaire. At the completion of the project, the ICF International will transfer or destroy all direct identifying
information according to security procedures and a data management plan to be approved by the CFPB. 29

28 The survey’s OMB control number will be listed in pre

- notification letters (Appendix C) , as well as a statement that the CFPB cannot conduct an information request until it displays a valid OMB
control number.

Consumers will be tol d that the average interview length is expected to be ten minutes, and that respondents should let interviewers know if they feel that this projection was inaccurate.

29 The data management plan will provide, at least, that the CFPB’s internal archived por tion of the survey documentation contain the information set forth in Guideline 7.3.2 of the OMB Standards and Guidelines for Statistical Surveys (Sept. 2006), where appropriate.18 11. J ustification for Sensitive Questions

Respondents will be asked to identify the financial institution that issued their most recently

- obtained credit card. The CFPB can consult documentation relat ing to that financial institution, to verify and report on t he accuracy o f consumers’ default assumptions regarding their dispute resolution rights.

C onsumers will be asked about their prior experiences with arbitration, litigation, class litigation , or small claims court . This information is gathered solely to help mitigate potential sampling bias issues, as opposed to primary reporting that would make estimates regarding consumers’ experiences in these forums. The actual disputes will not be identified. This information will be collected, so that any correlation between past experiences and consumer responses can be identified and, if appropriate, controlled for.

Respondents will also be asked basic demographic information regarding education,
race/eth nicity , age, income , and gender . This information will be used to gauge and potentially weight the sample so that the survey reflects representative demographic groups in the U.S. population

. 30

This information collection will not include questions about sexual behavior and attitudes, rel igious beliefs, disability, social security numbers, or other matters generally considered private.

30 Mercator similarly weighted its credit card survey results against “the de mographic structure of U.S. population in the statistical analysis based on geographic location, gender, income, household size, and age structure.” U.S. Credit Cardholders: Waiting for a Rebound , Mercator Advisory Group (Sept. 2011) (Customer Monitor Sur vey Series, Insight summary Report Vol. 3, Report 1). Mercator noted that the lowest economic strata of the U.S. population may be under

- represented. “On the other hand, the respondent base is certainly representative of the broad economic profile of

consu mers in the U.S. who have banking relationships.”19 12. E stimated Burden of Information Collection

No. of Respondents Annual Frequency

per Response Total Annual Responses Hours per Response Total Hours

Telephone Survey 1,000 1 1,000 0

. 1 7 0 31 170

13. Estimated Total Annual Cost Burden to Respondents or Recordkeepers

There are no annualized capital or start

- up costs for the respondents to participate
in the survey.

14. Estimated Cost to the Federal Government

There will be no annualized capital/start

- up costs for the government to receive the survey information. The testing is funded with non

- appropriated funds. It is anticipated that the contract to carry out the study will cost $ 186,500.

The Blanket Purchase Agreement, under which the survey will be conducted, was awarded through a competitive bidding process.

15. P rogram Changes or Adjustments

Because this is a new collection of information, all the burden is new and, as such, considered to be a program change for the purpose of OMB’s Paperwork Reduction Act inventory.

16. P lans for Editing , Statistical Analysis, and Publication

The CFPB anticipates that the survey will be completed within eight to twelve weeks of OMB approval. The contractor will develop the initial analysis and summary of the study findings.

Skip patterns will be embedded in the computer assisted telephone interviewing software, which should strongly mitigate erroneous data d ue to respondents being asked inappropriate questions or questions that were inadvertently skipped. The computer assisted telephone interviewing software will also contribute to data quality by not allowing response s that fall outside of logical bounds. Fu rther, the
CFPB and ICF International will review the data for logistical inconsistencies

31 The estimate for average burden per response was arrived at by testing the proposed survey questions with multiple CFPB personnel that are unaffiliated with the proposed study.20 before tabulation and, where appropriate, edit the collected data to mitigate or correct detectible errors. Missing data that cannot be resolved through editing may
b e imputed using accepted statistical techniques such as multiple imputation through chained equations.

Other question combinations may not result in clearly erroneous answers, but will
still require that specific combinations of answers be noted. For exa mple, some questions are designed to provide rough estimates of respondents’ familiarity with arbitration or litigation (e.g., “ What does it mean to participate in arbitration? ” )

. If a respondent is unable to list any features of arbitration (or that arbitration proceedings have binding results) , their lack of background knowledge can be noted when analyzing the consumer’s later responses

.

Where appropriate, the contractor will convert answers provided in response to

open - ended questions to standardized codes, which will allow the CFPB and future
users of the data to better analyze the information. For example, Question 4 asks consumers to list the most important reasons for choosing the credit card they use most frequently. The survey itself will not provide potential answers

. But consumers’ open

- ended responses will be converted to common codes, where possible , s o that all responses relating to low interest rates, for example, can be grouped together ; whereas other answers relating to specific rewards features would be grouped in to a different code

. Some consumer answers, however, may not be appropriate for grouping into codes. In such case, the individuals’ actual responses will be noted or summarized

. (Question 5, in contr ast, includes a closed

ended set of potential responses.)

The report will provide tabulations at the national level. Once the data is tabulated, it will be presented along with an executive summary and detailed findings about
the role that dispute resolution provisions play in consumer card acquisition priorities and consumers’ default assumption s regarding dispute resolution rights.

The report will also provide an evaluation of the quality of the data, as well as areas of potential improv ement. The CFPB does not c urrently c ontemplate conducting additional surveys on this subject , but the information may be useful for data interpretation or designers of similar studies.

17. D isplay of Expiration Date

The CFPB plans to display the OMB nu mber and expiration date for OMB approval on the pre

- notification letter

. Survey telephone administrators will also be provided
this information.21 18. E xceptions to the Certification Requirement

The Bureau certifies the this collection of information is consistent with the requirements of 5 CFR 1320.9, and the related provisions of 5 CFR 1320.8(b)(3) and is not seeking an exemption to these certification requirements.