by Nicholas Turner
Earlier this year the Supreme Court ruled 8-1 to reverse
a decision from the Ninth Circuit and enforce a provision in a credit-card
agreement requiring plaintiffs to arbitrate claims over unfair lending
practices. The decision in CompuCredit Corp. v. Greenwood [an enhanced version of this opinion is available to lexis.com subscribers
/ unenhanced version available from lexisONE Free Case Law] is the latest Supreme
Court case to limit plaintiffs' rights under the Federal Arbitration Act of
1925 following its decision last year in AT&T v. Concepcion.
The plaintiffs filed a class-action suit in the Northern
District of California against CompuCredit under the Credit Repair Organization
Act (the CROA). The CROA applies to credit card companies that cater to
low-income people and promise customers a way to build credit history and
improve credit scores. Plaintiffs alleged that CompuCredit provided misleading
promotional materials and charged hidden fees that totaled more than $250 on
average on an initial credit line of $300 in the first year alone.
CompuCredit moved to dismiss the complaint and class
certification and enforce a mandatory arbitration clause contained in the
customer credit agreement. The District Court rejected the motion, and the
Ninth Circuit affirmed, holding that §1679c(a) of the CROA gave plaintiffs "a
right to sue" in court in order to enforce the Act's provisions. Section
1679c(a) requires companies to include a disclosure in customer agreements
stating that: "You have a right to sue a credit repair organization that violates
the [CROA]." Moreover, §1679f invalidated "[a]ny waiver by any
consumer of any protection provided by or any right of the consumer under" the
Act, thereby making the arbitration clause unenforceable.
The Supreme Court's majority voted to reverse the lower
courts' decisions, holding that §1679c(a) did not give the plaintiffs a
substantive right to sue, but only the right to "receive the statement"
contained in §1679c(a). Therefore, §1679f did not incorporate the right
to sue and did not make the arbitration clause unenforceable.
Additionally, the majority held that other sections of
the Act did not give plaintiffs an express right to sue in court because it
left the parties free to choose their own forum. Therefore, plaintiffs who sign
arbitration agreements must begin their cases there, and may only resort to
traditional courts if necessary to enforce or review awards.
The majority came to its conclusion in light of the
strong presumption in favor of arbitration clauses given by the Federal
Arbitration Act of 1925 (FAA). The Court acknowledged that the disclosure
contained in §1679c(a) of the CROA was "imprecise," but reasoned that Congress
would have specifically invalidated mandatory arbitration clauses in the CROA,
if it had intended to do so.
Justice Ginsberg in her dissent argued that §1679c(a)
should be read to give plaintiffs the right to sue in court in keeping with the
section's plain meaning because "Congress' target audience in the CROA is not
composed of lawyers and judges accustomed to nuanced reading of statutory
texts, but laypersons who receive a disclosure statement in the mail." Since "a
right to sue" typically implies the right to sue in court- not
arbitration-consumers should not be able to waive that right, per §1679f.
Ginsberg concluded that the majority's decision would allow companies "to deny
consumers, through fine print in a contract, an important right" contained in
The outcome in CompuCredit only increases the
disadvantage given to plaintiffs under the Court's holding in Concepion, which
undermined state laws protecting consumers against class-action waivers in
arbitration clauses. Taken together, the decisions allow credit companies to
deny plaintiffs-particularly low-income ones-the benefit of class-action
status, while forcing their claims into the forum that is most favorable to the
Related: Why we need the Arbitration Fairness
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