Does the plain language of the CROA create a non-waivable right to sue, thereby voiding a consumer contract’s binding arbitration agreement?
Respondents Wanda Greenwood, Ladelle Hatfield, and Deborah McCleese each applied for an Aspire Visa credit card that petitioner CompuCredit Corporation marketed. Petitioner Synovus Bank issued the Aspire Visas after each respondent signed an agreement containing a binding arbitration provision. When respondents were charged card-related fees, they filed a class-action lawsuit on behalf of themselves and others similarly situated alleging that petitioners engaged in deceitful marketing in violation of the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq. (“CROA”). CompuCredit moved to compel arbitration pursuant to the pre-dispute arbitration agreement. The district court acknowledged the strong federal policy favoring arbitration, but held that the CROA created a non-waivable right for consumers to sue in court. On appeal, the Ninth Circuit upheld the decision that the arbitration agreements were unenforceable under the CROA. Petitioners argue that the contract between the parties should be honored and the binding arbitration clause enforced. Respondents contend, however, that Congress intended to preserve the right to bring a claim in court when it enacted the CROA. The Supreme Court’s decision will consider the balance between consumers’ right to contract and providing adequate protections for vulnerable consumers. This decision will affect the enforceability of consumer contracts’ pre-dispute arbitration agreements and the extent to which arbitration may act as an acceptable substitute for an individual’s access to court.
Questions as Framed for the Court by the Parties
Whether claims arising under the CROA are subject to arbitration pursuant to a valid arbitration agreement.
CompuCredit Corporation considered a credit repair organization for purposes of this case, marketed a subprime credit card called Aspire Visa to consumers with impaired credit records. See Greenwood v. CompuCredit Corp., 615 F.3d 1204, 1205 (9th Cir. 2010). As the card’s exclusive marketer and advertiser, CompuCredit Corp. represented the card as a tool to improve a consumer’s credit rating and guaranteed $300 available credit upon receipt of the card. See id. However, the issuing bank, Columbus Bank and Trust (a division of petitioner Synovus Bank), would charge a series of fees totaling over $180 against the $300 credit limit—charges which CompuCredit Corp.’s promotional materials mentioned in small print. See id. Before receiving the card, each consumer was required to sign a Pre-Approved Acceptance Certificate referring to the enclosed “Terms of Offer” and “Summary of Credit Terms,” which created binding for disputes relating to the consumer’s Aspire Visa account. See id.
Respondents (collectively “Greenwood”) sued petitioners (collectively “CompuCredit”), alleging that the fees charged in connection with the Aspire Visa violated the Credit Repair Organizations Act. See id. CompuCredit moved to compel arbitration pursuant to the terms of the Certificate. See id. at 1206.
The United States District Court of the Northern District of California denied CompuCredit’s motion to compel arbitration and ruled that the CROA provides consumers with a non-waivable right to litigate their disputes in court. See Greenwood v. CompuCredit, 617 F.Supp.2d 980, 988 (N.D. Cal. 2009). Despite recognizing the strong federal policy favoring arbitration under the Federal Arbitration Act (“FAA”) and a Third Circuit precedent in favor of compulsory arbitration, the district court held that the “right to sue” and the anti-waiver language used in the CROA demonstrated Congress’s intent to treat claims under the CROA as non-arbitrable. See id. at 985–88; see also Gay v. CreditInform, 511 F.3d 369, 383 (3d Cir. 2007). The district court further denied CompuCredit’s motion for leave to seek reconsideration or clarification based on an ruling in favor of compulsory arbitration, which was decided almost immediately after the district court’s decision in this case. See Greenwood, 617 F.Supp. 2d at 988; see also Picard v. Credit Solutions, Inc., 564 F.3d. 1249 (11th Cir. 2009). The Ninth Circuit affirmed the district court’s decision that the CROA provided a non-waivable right to sue, creating a split from the Third and Eleventh Circuits. See Greenwood, 615 F.3d at 1205.
Congress enacted the CROA in part to require that necessary information be given credit-services consumers and to protect consumers against predatory business practices. See 15 U.S.C. § 1679. The CROA provides all consumers with the “right to sue a credit repair organization that violates the [CROA]” and protects this right, along with others, through an anti-waiver clause. See 15 U.S.C. §§ 1679c(a), 1679f(a). CompuCredit argues that the CROA does not expressly prohibit the Supreme Court from enforcing a valid arbitration clause in a consumer contract. See at 18–19. Greenwood argues that the contract’s binding arbitration provision is not valid because the CROA’s anti-waiver provision voids the waiver of any protection that the statute provides to consumers, including the “right to sue”. See Brief for Respondents at 13–14.
CompuCredit contends that the strong federal policy favoring arbitration evidences that Congress did not intend for the CROA to override the right to resolve controversies through arbitration. See Brief for Petitioners at 34. According to CompuCredit, the CROA’s “right to sue” provision is a procedural right that Congress did not intend to subject to the anti-waiver provision, as demonstrated by the latter provision’s placement before the procedural rights but after the substantive rights set forth in the CROA. See id. at 31–32. CompuCredit contends that Congress’s intent is also demonstrated by the language of the anti-waiver provision, which prohibits “any Federal or State court or any other person” from enforcing a waiver of the CROA’s rights. See id. at 29–30. This language, CompuCredit asserts, indicates that Congress intended for actors outside of the courtroom, such as arbitrators, to decide CROA-related claims. See id. Additionally, CompuCredit argues that where Congress has disallowed arbitration agreements or denied enforcement of the FAA, it has done so “expressly and unambiguously” in the text of the statute. See id. at 19. The CROA, in contrast, does not directly state that arbitration agreements are invalid or that the FAA does not apply to disputes arising under the CROA. See id. at 22. CompuCredit concludes that the contractual agreement to arbitrate is binding and enforceable under the CROA, as the ability to arbitrate is itself a method of enforcing the consumer protections and rights that the CROA created. See at 32, 38–39.
In opposition, Greenwood argues that Congress intended for the CROA to prevent the enforcement of pre-dispute arbitration clauses found in consumer contracts, such as the clause at issue in this case. See Brief for Respondents at 14–15. The plain language of the CROA provides consumers with the “right to sue,” and Greenwood contends that this right is not satisfied by the opportunity to submit a dispute to arbitration. See at 17. Greenwood claims that Congress’s intent under the CROA is clear—the Supreme Court has consistently considered the “right to sue” to mean the right to proceed in court, as opposed to the right to proceed in arbitration or another non-judicial forum. See id. at 19–21, 45. In addition, Greenwood argues that where the statute’s anti-waiver provision prohibits enforcement by “any other person,” it is likely referring to an administrative agency officer or a private individual initiating litigation, and not an arbitrator as CompuCredit contends. See at 42. Furthermore, Greenwood asserts that even if the right to sue may be “procedural” in some sense, the language of the anti-waiver provision explicitly includes this right by forbidding a waiver of the consumer’s right to a “judicial forum” and thereby affirms that Congress intended to protect the right regardless of how it is classified. See id. at 47. According to the plain language and natural construction of the CROA, Greenwood concludes that Congress intended for the broad protection of the right to sue when it created the anti-waiver provision and made “any waiver of any right” unenforceable under the CROA. See id. at 29–30.
Effects of the CROA’S Anti-Waiver Provision
CompuCredit argues that the CROA’s anti-waiver provision does not prohibit pre-dispute agreements. See s at 24–25. CompuCredit contends that the Supreme Court considers only substantive rights to be included as “rights” for the purposes of anti-waiver provisions. See id. at 34. Arbitration agreements, CompuCredit states, do not involve the sacrifice of a substantive right that is provided by the CROA, but merely provide a different forum for the resolution of claims. See at 36. Under this reading, CompuCredit maintains that the CROA is only describing a venue that will be generally available to the consumer, but is not mandating the use of a judicial forum to the exclusion of arbitration agreements. See id. at 35–36. CompuCredit further argues that although the statute's civil liability provision makes a passing reference to a “court,” it does not create the right to litigate in court, but reflects only Congress’s reasonable assumption that most CROA-related claims would be resolved in this traditional fashion. See at 36–37. CompuCredit asserts that Congress’s preference for arbitration highlights the CROA’s failure to explicitly prohibit arbitration, leading to the conclusion that pre-dispute arbitration agreements must be honored. See Reply Brief for Petitioner at 4.
In contrast, Greenwood contends that the CROA’s anti-waiver provision precludes all pre-dispute agreements that stipulate non-judicial forums for dispute resolution, including arbitration agreements. See Brief for Respondents at 44. Greenwood points to recent Supreme Court decisions that discuss the differences between a lawsuit and arbitration, and argues that these substantive distinctions make it clear that compelled arbitration can not be considered an equivalent to the right to sue in court. See id. at 45–47. Furthermore, Greenwood asserts that even if a valid arbitration clause permits a consumer to file a complaint in court, as CompuCredit contends it does, the court must immediately direct that complaint to arbitration, demonstrating that the right to sue cannot coexist with a binding arbitration provision. See id. at 48–49. Greenwood also argues that if the contract’s arbitration clause were valid, and a consumer proceeded to file a contract-related complaint in court, that consumer would be in breach of the contract. See id. Since neither arbitration nor the mere ability to file a claim in court satisfies the CROA-created “right to sue,” the language of the CROA mandates that consumers resolve their CROA-related claims in the courtroom. See id. at 45.
In 1996, Congress enacted the CROA, aiming to ensure that consumers are supplied with the information to make informed decisions when purchasing credit services, and to protect consumers from predatory business practices. See . CompuCredit, along with its amici curiae, contends that the CROA does not require consumers to resolve CROA-related disputes in court, and that invalidating pre-dispute arbitration agreements would disturb business expectations, harm consumers’ interests, and waste limited judicial resources. See Brief of Amicus Curiae Consumer Data Industry Association (“CDIA”) in Support of Petitioners at 14–17. In contrast, Greenwood claims that the CROA grants consumers a non-waivable right to proceed in court, and that a compulsory arbitration provision forecloses class action and compromises consumers’ due process rights. See in Support of Respondents at 25–26, 32–33.
Impact on Consumers and Credit Repair Organizations
CompuCredit and its amici curiae, The Voice of the Defense Bar (“DRI”) and the Consumer Data Industry Association (“CDIA”), argue that both consumers and credit repair organizations benefit from valid arbitration agreements. See Brief of DRI at 7. DRI contends that arbitration agreements provide credit repair organizations with streamlined settlement procedures that increase the predictability and the speed of dispute resolution, thereby reducing the costs. See id. The CDIA claims that credit repair organizations pass the savings from reduced litigation costs on to the consumer by providing affordable prices for services and products. See Brief of CDIA at 16. The CDIA argues that if arbitration agreements are invalid under the CROA, the resulting rise in litigation costs would cause credit repair organizations to increase their product and service costs, or even eliminate some products and services. See
In contrast, Greenwood and her amici curiae maintain that the CROA protects consumers by precluding credit repair organizations from settling disputes through arbitration. See Brief of AARP and NSCLC at 32–33. By permitting aggregate damages for a group of similarly situated consumers, Greenwood argues, the CROA provides for class-action recoveries, which are generally unavailable to consumers through arbitration. See Brief for Respondents at 47. The (“AAJ”) further elaborates that arbitration’s limited procedural safeguards make it poorly suited for the higher stakes of class action—courts, which are subject to public scrutiny and reflection, are better situated to adjudicate class litigations. See at 13–15. Quoting the Supreme Court’s decision in AT&T Mobility v. Concepcion LLC, 563 U.S. __ (2011) for support, the AAJ contends that class arbitration, even if allowed, would not best protect consumers as the finality of arbitration decisions increases the likelihood for uncorrected errors. See id. at 14–15.
Impact on the Justice System and Due Process Rights
CompuCredit asserts that requiring consumers and credit repair organizations to resolve their disputes in court not only runs contrary to the federal policy in favor of arbitration, but will also have negative effects on the U.S. court system. See Brief for Petitioners at 16–17, 28. If the CROA is read to require dispute resolution in court, CompuCredit argues that merely offering a consumer the option to enter into arbitration would qualify as an attempt a waive a CROA right, a violation of federal law, and subject the credit repair organization to damage liability. See id. at 28. CompuCredit contends that the same undesirable result would occur if a credit repair organization attempted to reach a settlement agreement with the consumer. See at 28–29. According to the CDIA, this reading would force courts to spend their limited resources managing cases that either could have been settled or should have been referred to arbitration pursuant to a valid agreement between the parties. See Brief of CDIA at 14.
The AARP and NSCLC argue that the disclosure of the “right to sue” contained in the CROA must inform consumers of the right to proceed in court in order to be consistent with the Due Process Clause. See Brief of AARP and NSCLC at 25–26. The purpose of the disclosure notice required by the CROA, the AARP and NSCLC contend, is to inform consumers of rights they possess against a violating credit repair organization. See id. at 25. According to the AARP and NSCLC, if the Court determines that arbitration agreements are valid, the CROA would require credit repair organizations to present their consumers with a written disclosure containing misinformation about a non-existent right to litigate claims in a judicial forum. See id. at 32–33. This result, the AARP and NSCLC assert, would run against the purpose of the Due Process Clause’s notice requirement—“to inform individuals of rights they possess.” See id. at 25.
In this case, the Supreme Court will resolve whether the CROA permits the enforcement of mandatory arbitration agreements in consumer contracts. CompuCredit asserts that the right to pursue a claim in court is merely procedural and that arbitration will protect the substantive rights created by the CROA while upholding the strong federal policy favoring arbitration. Greenwood argues that the CROA explicitly creates a non-waivable right for the consumer to resolve disputes in court, thereby protecting vulnerable consumers from potential abuses of credit repair organizations. In enacting the CROA, CompuCredit argues, Congress intended to allow consumers to waive their procedural right to go to court, while Greenwood contends that Congress intended for the CROA’s anti-waiver provision to preclude all pre-dispute arbitration agreements. The Supreme Court's decision will clarify the extent of the federal policy favoring arbitration and will elucidate how consumers may proceed against credit repair organizations under the CROA.
The authors would like to thank former Supreme Court Reporter of Decisions Frank Wagner for his assistance in editing this preview.
• LII: Arbitration
• LII: Consumer Credit
• Fordham Law Review, Genevieve Hanft: Giving Arbitration Some Credit: The Enforceability of Arbitration Clauses under the Credit Repair Organizations Act.