More on Consumer Rights and Consumer Costs

A few days ago I posted here about the rule proposed by the Consumer Financial Products Bureau that would prohibit pre-dispute mandatory arbitration in financial contracts and permit aggrieved consumers to proceed via class action. In brief, I believe the first part of the rule is a good idea but the second, not so much.

Go here to read why I'm more convinced of at least half of my position. Omri Ben-Shahar, who teaches at the University of Chicago law school, is the real deal. He featured in a supporting role in a post a year ago here. He mentions in his post--almost in passing--the prohibition of mandatory arbitration but goes on to assail the class-action half of the CFPB solution. Why?

While the overall effect [of permitting class actions] on consumers depends on the balance between meritorious and frivolous class actions, one prediction can be made with confidence. Firms will now take greater care in drafting even longer fine print agreements, where everything is fully “disclosed.” Since many class actions allege violations that can often be corrected through more comprehensive legal disclosures and warnings, firms will lawyer up and write longer and even less readable boilerplate.

In other words, the threat of class actions to vindicate consumer rights will lead to ever-more boilerplate that no one reads and does no one any good. 

What Ben-Shahar does not mention, however, is my suggestion to permit consumers to proceed individually and to award attorneys' fees and expenses to those who prevail. Such a consumer would need to show actual injury but would not be deterred from proceeding if the injury was so small that no one would pay the cost of litigation. A few successful claims would both correct an actual injustice done to a consumer and deter further misbehavior, all without the externalities associated with many class actions.