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CompuCredit v. Greenwood
What’s at stake?
The right of consumers to sue credit repair companies when they are charged excessive fees.
Whether the Credit Repair Organization Act’s requirement that a consumer be informed of the right to “sue” voids mandatory arbitration clauses in credit repair contracts.
January 10, 2012
8-1 in favor of CompuCredit. Justice Scalia delivered the opinion of the Court, joined by Chief Justice Roberts and Justices Kennedy, Thomas, Breyer, and Alito. Justice Sotomayor filed a concurrence in the judgment, in which Justice Kagan joined. Justice Ginsburg filed a dissenting opinion.
What the Court held:
Plaintiff consumers filed a class action lawsuit against CompuCredit and other credit providers after signing up for a credit card that was advertised to consumers with low or weak credit scores as helping to “rebuild your credit, “rebuild poor credit,” and “improve your credit rating.” Although the credit providers’ promotional materials stated that consumers would immediately receive $300 in available credit, consumers were charged $257 in fees in the first year, plus the interest that would accrue if the fees were not immediately paid. The consumers sued the companies for their deceitful tactics under the Credit Repair Organization Act (“CROA”) and California’s Unfair Competition Law. CompuCredit moved to dissolve the class action and force each plaintiff to settle his or her own complaint in binding arbitration.
The Supreme Court held that the arbitration clause in CompuCredit’s take-it-or-leave-it contracts with consumers are enforceable, thereby preventing consumers from filing a class action lawsuit in court. This conclusion is shocking, considering that Congress specifically required companies like CompuCredit to inform their customers: “You have a right to sue a credit repair organization that violates the Credit Repair Organization Act.” Nonetheless, the Court found that this provision of the CROA only creates the right to receive the statement, not an underlying right to sue. Instead, the Court found that so long as parties could enforce the law in some way – such as arbitration – the CROA is not violated. The Court maintained that the “right to sue” language is “a colloquial method of communicating to consumers that they have the legal right, enforceable in court, to recover damages from credit repair organizations that violate the CROA,” and that “most consumers would understand it this way, without regard to whether the suit in court has to be preceded by an arbitration proceeding.”
In dissent, Justice Ginsburg argued that the majority’s interpretation of the CROA’s “right to sue” “may be comprehensible to one trained to ‘think like a lawyer.’” However, she pointed out that Congress enacted the CROA to protect vulnerable consumers of “limited economic means,” who are “likely to read the words ‘right to sue’ to mean the right to litigate in court, not the obligation to submit disputes to binding arbitration.” Particularly in a statute designed to prevent credit repair organizations from unfair and deceptive practices, Justice Ginsburg found that Congress certainly did not intend to allow those organizations to deceive consumers by telling them they had a right that they do not in fact have – i.e., the right to sue.
By ruling for CompuCredit, the Supreme Court has found yet another way to close the courthouse doors to ordinary Americans. This decision follows on last year’s decision in AT&T v. Concepcion, in which the Court granted companies the right to draft contracts forcing consumers to arbitrate disputes one-by-one, without recourse to banding together in class actions. By preventing plaintiffs from being able to band together to sue CompuCredit and other credit providers for their deceitful practices, either in court or in arbitration, the Court has ensured that corporate defendants are unlikely to be held accountable for defrauding consumers.
- LA Times: Supreme Court says forced arbitration OK under credit repair law
- Reuters: US court rules for arbitration in credit card case