Compucredit Corp. v. Greenwood

2012-01-10

Headline: Court allows enforcement of arbitration agreements for Credit Repair Organizations Act claims, making it harder for consumers to sue in court and sending many disputes into private arbitration.

Holding: The Court held that the Federal Arbitration Act requires enforcement of the cardholders’ arbitration agreement because the CROA does not clearly forbid arbitration, so the arbitration clause can be enforced instead of court litigation.

Real World Impact:

Makes it harder for consumers to bring CROA claims in court.
Allows companies to enforce pre-dispute arbitration clauses in credit-repair or card contracts.
Shifts more CROA disputes into private arbitration rather than public courts.

Topics: consumer protection, arbitration agreements, credit repair, class action lawsuits

Summary

Background

A group of individuals who received an Aspire Visa card marketed by CompuCredit sued, saying the company made misleading promises and charged large fees. Their card applications included a clause saying disputes would be resolved by binding arbitration. The District Court and the Ninth Circuit held that the Credit Repair Organizations Act (CROA) prevented arbitration; the Supreme Court agreed to review that ruling.

Reasoning

The Court asked whether the CROA clearly bars arbitration. The majority explained that the Federal Arbitration Act creates a strong federal policy favoring enforcement of arbitration clauses. The CROA requires a consumer disclosure that says “you have a right to sue,” and it declares consumer waivers void. But the Court read the disclosure as an obligation on companies to give a brief statement, not as a guarantee of an initial courtroom forum. The Court compared the CROA to other statutes where courts have enforced arbitration and concluded the CROA does not clearly command that claims be brought first in court. Because the CROA is silent on forum, the arbitration agreement must be enforced and the Ninth Circuit’s judgment was reversed.

Real world impact

As a result, many claims under the CROA brought under similar contracts will be decided in arbitration instead of starting in court. That change makes it harder for consumers to pursue court litigation, including class actions. The decision is not a final merits ruling on the underlying claims and Congress could change the result by amending the law.

Dissents or concurrances

Justice Sotomayor (joined by Justice Kagan) agreed with the outcome but said the case was close and reasonable readers could view the statute differently. Justice Ginsburg dissented, arguing ordinary consumers would read “right to sue” as a right to litigate in court and that the nonwaiver provision bars mandatory arbitration.