This morning, the Supreme Court heard oral arguments in CompuCredit v. Greenwood, a case that will decide whether a federal law requiring that consumers be informed of their “right to sue” voids mandatory arbitration clauses in credit repair contracts.
Plaintiffs in this case are a class of consumers who sued CompuCredit for deceitful marketing tactics under the Credit Repair Organization Act (CROA). These consumers signed up for credit cards which CompuCredit claimed would help them rebuild their credit. Instead, credit card holders were charged $257 per year in undisclosed fees, plus interest, if the fees were not paid. The credit card agreement also included a mandatory arbitration clause which the consumers now claim is invalidated by the CROA.
The CROA requires that agreements between credit repair companies and consumers must contain the language: “You have the right to sue a credit repair organization that violates the Credit Repair Organization Act.” The consumer plaintiffs claim that this language voids the mandatory arbitration clause in CompuCredit’s contracts with them, thus giving them an actual, meaningful “right to sue.” CompuCredit argues that consumers must go to arbitration rather than bringing their lawsuit in court because the CROA requires only disclosure of a right to sue and not an actual right to sue. Both the federal district court and the Ninth Circuit Court of Appeals ruled in favor of the consumers, holding that the CROA voids the arbitration clause.
The argument today found the justices on both sides of the issue. Justice Ginsberg observed that the statute’s language requiring consumers to be notified of a right to sue must include an actual right to sue, as anyone who read the notice would believe. Likewise, Justice Kagan observed that the CROA “says you have a right to sue, and you [-- CompuCredits’ counsel --] are asking us essentially to read that language as: You have a right to bring a claim in court, but it's probably going to end up in arbitration because of the nature of your form contract.” Justice Scalia, on the other hand, was open to CompuCredit’s reading of the “right to sue” language as merely providing notice and not a substantive right because the language creating the requirement was not located in the substantive part of the statute.
This case comes to the Supreme Court at a time when consumers are increasingly being forced from the courts into mandatory arbitration. The Court’s recent cases involving arbitration agreements have held that they are enforceable under the Federal Arbitration Act.
Last term in AT&T v. Concepcion, the Court upheld a company’s right to include in its standard contract a waiver of the consumer’s right to sue or participate in a class action. This was devastating for consumers’ rights because an individual consumer will not have the resources or incentive to take on a corporation when they have been cheated out of a small amount of money and must find strength in numbers to bring such a lawsuit. If consumers are not allowed to band together as a group, corporations will not be held accountable for their deceptive or harmful practices. One of the few remaining exceptions to the rule in AT&T is where federal law provides an express right to sue.
This Thursday, Senators Al Franken and Richard Blumenthal will lead a Senate Judiciary Committee hearing entitled “Arbitration: Is It Fair When Forced?” to address the problems caused by the Supreme Court’s forced arbitration cases.
AFJ released a special report today highlighting how the Corporate Court has used the arbitration system to help businesses evade justice.