The U.S. Supreme Court recently held that claims arising under the federal Credit Repair Organizations Act are subject to arbitration, and that the CROA does not override the Federal Arbitration Act's mandate to enforce arbitration agreements, notwithstanding the CROA's private right of action and nonwaiver-of-rights provision.
A copy of the opinion is available at:
Plaintiffs-Respondents ("Debtors") applied for and obtained a credit card in response to promotional material from a marketer of credit cards, allegedly targeted at individuals with a history of poor credit as a way to improve their credit scores. Debtors agreed in their credit applications to submit any claims arising from the credit cards to mandatory binding arbitration.
Upset over alleged hidden costs and other supposedly improperly disclosed terms of the credit card agreement, Debtors filed a class action lawsuit in federal court claiming that the credit card marketer and issuer (the "Alleged Credit Repair Companies") had engaged in unfair and deceptive practices in violation of the Credit Repair Organizations Act, 15 U.S.C. §1679 et seq. (CROA). In their complaint, the Debtors alleged that the Alleged Credit Repair Companies supposedly failed among other things to disclose in the written credit card materials the assessment of high fees that significantly reduced the amount of the advertised available credit.
The district court denied the Alleged Credit Repair Companies' motion to compel arbitration, concluding that claims brought under the CROA were not subject to arbitration, because of its provisions establishing a right to sue and prohibiting the waiver of "any right under the [CROA]." The Alleged Credit Repair Companies appealed, and the Ninth Circuit affirmed. The Supreme Court reversed and remanded, ruling that the Federal Arbitration Act ("FAA") requires the enforcement of the arbitration provision in the credit card agreements.
As you may recall, the FAA provides that a written contractual arbitration provision is enforceable to the same extent as any valid contract. See 9 U.S.C. §2. See also, e.g., AT&T Mobility LLC v. Concepcion, 563 U.S. __, __ (2011). Accordingly, following its prior FAA opinions, the Court noted that the FAA requires the enforcement of arbitration agreements in accordance with their terms, unless a "contrary congressional command" dictates otherwise.
The Court then examined the CROA to determine whether its provisions provided the "congressional command" to override the FAA. The Court noted that the CROA provides a private right of action and sets forth certain disclosure requirements for consumer contracts, one of which is a statement that a consumer has the "right to sue a credit repair organization that violates the [CROA]." The CROA also contains a nonwaiver provision that prohibits the waiver of consumer rights afforded by the CROA. See 15 U.S.C. §1679c(a)(requiring statement disclosing the right to dispute inaccurate credit information and to obtain a copy of credit report, and that the consumer has "a right to sue a credit repair organization that violates the [CROA]"), 1679f(a)(prohibiting waiver of any "right of the consumer" under the CROA), 1679g(a)(establishing liability for violations and setting damages for both individual and class actions).
The Court rejected the Debtors' argument that the nonwaiver provision in Section 1679f(a) rendered the binding arbitration agreement unenforceable. In so ruling, the Court specifically stated that the "right to sue" phrase in the disclosure provision of Section 1679c(a) does not provide consumers with the right to bring an action in court. According to the Court, the disclosure provision merely gives consumers the right to receive the statement describing the consumer protections that the law provides elsewhere, such as the right to dispute inaccurate information in one's credit report or the right to cancel a consumer contract within 3 days.
The Court thus concluded that the private right of action under the CROA was part of a formulation of a cause of action under the CROA, but was insufficient to rise to the level of a "congressional command" to override the FAA's mandate to honor arbitration agreements. Accordingly, while recognizing the private right of action under the CROA, the Court determined that the arbitration provision in the credit card agreement was nevertheless enforceable.
In support of this interpretation, the Court pointed out that its previous opinions addressing arbitration agreements with respect to federal causes of action "repeatedly recognized that contractually required arbitration of claims satisfies the statutory prescription of civil liability in court." See Gilmer v. Interstate/Johnson Lane Corp. 500 U.S. 20, 28 (1991); Shearson/American Express, Inc. v. McMahon, 482 U.S. 220, 240 (1987); Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. 473 U.S. 614, 637 (1985).
Noting, however, that none of the federal statutes in those prior cases involved a nonwaiver provision, as the CROA does, the Court nevertheless concluded that the CROA's nonwaiver provision failed to reflect congressional intent that the CROA should supplant the FAA. The Court also noted that its interpretation allows parties to remain free to specify the parameters of judicial action with regard to initial arbitral adjudication, "so long as the guarantee of §1679g--the guarantee of the legal power to impose liability--is preserved."
The Court opined that had Congress intended the CROA to prohibit the use of arbitration agreements, Congress would have done so expressly, as it had done in other federal statutes that specifically prohibit such agreements, rather than ambiguously in the CROA's right-to-sue and nonwaiver provisions. Finally, the Court held that, as the CROA is silent on whether claims may proceed to arbitration, the FAA requires the enforcement of the arbitration provision in the credit card agreements the Debtors signed.
Ralph T. Wutscher
McGinnis Tessitore Wutscher LLP
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Email: RWutscher@mtwllp.com
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