Credit Repair Organization Act’s Silence On Arbitration Means Claims Must Be Arbitrated, High Court Rules

Credit Repair Organization Act’s Silence On Arbitration Means Claims Must Be Arbitrated, High Court Rules

WASHINGTON, D.C. - (Mealey's) Because the Credit Repair Organizations Act (CROA) does not specifically state whether claims brought pursuant to the act are eligible for arbitration, the Federal Arbitration Act (FAA) requires an arbitration agreement in a credit card agreement "to be enforced according to its terms," a split U.S. Supreme Court ruled Jan. 10 (CompuCredit Corp., et al. v. Wanda Greenwood, et al., No. 10-948, U.S. Sup.; See October 2011, Page 7) (lexis.com subscribers may access Supreme Court briefs for this case).

Consumers filed a class action lawsuit in the U.S. District Court for the Northern District of California, naming credit providers CompuCredit Corp. and Columbus Bank and Trust as defendants.  The consumers allege that the credit providers, who marketed a subprime credit card under the brand name Aspire Visa, violated the CROA and California's unfair competition law by charging a number of hidden fees for use of the card.

The credit providers moved to compel arbitration of the consumer's CROA claims, which the District Court denied, along with the credit providers' motion for leave to move for reconsideration.

Squarely Divided

The credit providers appealed to the Ninth Circuit U.S. Court of Appeals, which affirmed in a 2-1 ruling.  The credit providers then appealed to the Supreme Court and filed a petition for writ of certiorari on Jan. 24.

The question presented to the Supreme Court was:  "Whether claims arising under the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq., are subject to arbitration pursuant to a valid arbitration agreement."

Oral argument was heard Oct. 11, and in reversing and remanding, the majority held that pursuant to the FAA, courts are required to "enforce arbitration agreements according to their terms."

Federal Statutory Claims

"That is the case even when federal statutory claims are at issue, unless the FAA's mandate has been 'over-ridden by a contrary congressional command,'" the majority said.

The majority also rejected the consumers' contention that "the CROA's disclosure provision - which requires credit repair organizations to provide consumers with a statement that includes the sentence '"You have a right to sue a credit repair organization that violates the [Act],"' - gives consumers the right to bring an action in a court of law; and that, because the CROA prohibits the waiver of 'any right of the consumer under this sub­chapter,' §1679f(a), the arbitration agreement's waiver of the 'right' to bring a court action cannot be enforced."

"Respondents' premise is flawed.  The disclosure provision creates only a right for consumers to receive a specific statement describing the consumer protections that the law elsewhere provides, one of which is the right to enforce a credit repair organization's 'liab[ility]' for 'fail[ure] to comply with[the Act].'  That provision does not override the FAA's mandate.  Its mere contemplation of judicial enforcement does not demonstrate that the Act provides consumers with a 'right' to initial judicial enforcement," the majority stated.

Consumer Contracts

Moreover, the majority ruled that had Congress intended to prohibit arbitration in consumer contracts subject to CROA when enacting the statute, "it would have done so in a manner less obtuse than what respondents suggest."

Justice Antonin Scalia wrote the majority's opinion and was joined by Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Clarence Thomas, Stephen G. Breyer and Samuel A. Alito Jr.

Justice Sonia Sotomayor wrote an opinion concurring with the judgment of the majority with regard to the congressional intent but said that "for the reasons stated by the dissent, I find this to be a much closer case than the majority opinion suggests."

Justice Elena Kagan joined in Justice Sotomayor's opinion.

Dissenting Opinion

Justice Ruth Bader Ginsburg issued a dissenting opinion asserting that "[i]n accord with the Ninth Circuit, I would hold that Congress, in an Act meant to curb deceptive practices, did not authorize credit repair organizations to make a false or misleading disclosure - telling customers of a right they do not, in fact, possess.  If the Act affords consumers a nonwaivable right to sue in court, as I believe it does, a credit repair organization cannot retract that right by making arbitration the consumer's sole recourse."

The credit providers are represented by McConnell of Kirkland & Ellis in Washington and Sri Srinivasan of O'Melveny & Myers in Washington.

The consumers are represented by Nelson of the Public Citizen Litigation Group in Washington and W. Lloyd Copeland of Taylor Martino in Mobile, Ala.

Amicus curiae DRI - Voice of the Defense Bar is represented by Linda T. Coberly and Tyler G. Johannes of Winston & Strawn in Chicago, Gene C. Schaerr, Steffen N. Johnson and Andrew C. Nichols of Winston & Strawn in Washington and DRI President R. Matthew Cairns of Chicago.  Amicus Consumer Data Industry Association is represented by Anne P. Fortney of Hudson Cook in Washington.  Amici AARP and the National Senior Citizens Law Center are represented by Julie Nepveu of AARP Foundation Litigation in Washington.  Amicus American Association for Justice is represented by John Vail of the Center of Constitutional Litigation in Washington.

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