CompuCredit Corporation, et al. v. Greenwood, et al. (U.S. Supreme Court Dkt. No. 10-948), is the latest case since AT&T Mobility v. Concepcion, 113 S.Ct. 1740 (2011) to be decided by the Supreme Court affecting arbitration agreements in consumer contracts. This case may again explore the scope of the Federal Arbitration Act (“FAA”) and provide further guidance regarding the availability of arbitration and class action waivers to businesses servicing consumers.

The statute at issue - the Credit Repair Reporting Act - regulates companies that assist consumers to improve their credit record, credit history or credit rating. But the impact of this decision may be much broader than this narrow statute. Following the Court’s decision in Concepcion (which upheld AT&T Mobility’s class action waiver in its arbitration provision), the Court may provide further guidance regarding application of the FAA and the ability of all companies serving consumers to utilize arbitration agreements and class action waivers.

CompuCredit’s Arbitration Provision

In Greenwood, a putative class of consumers who were issued sub-prime credit cards sued their credit card issuer - CompuCredit - in the Northern District of California, alleging several violations of the Credit Repair Organizations Act (“CROA”) and California’s Unfair Competition Law. Greenwood v. CompuCredit, 617 F.Supp. 980, 982 (N.D. Cal. 2009).

CompuCredit marketed sub-prime credit cards under the brand name “Aspire Visa” to customers with low credit scores, representing that the card would “rebuild poor credit” and would “improve your credit rating.” Id. Before receiving the Aspire Visa credit card, each Plaintiff was provided with several notices including:

  1. A “Pre-Approved Acceptance Certificate” requiring the customer's signature, which stated: “I have read and agree to be bound by the “Summary of Credit Terms” and “Terms of Offer” . . . which insert includes a discussion of arbitration applicable to my account . . . .” (Id.)
  2. A “Terms of the Offer,” which explained in “very small bold print”: “The Agreement you receive contains a binding arbitration provision. If a dispute is resolved by binding arbitration, you will not have the right to go to court or have the dispute heard by a jury . . . or to participate in a class of claimants relating to such dispute . . .” (Id.)(emphasis added).
  3. A “Summary of Credit Terms,” which provided:

ARBITRATION PROVISION (AGREEMENT TO ARBITRATE CLAIMS)

Any claim, dispute or controversy (whether in contract, tort, or otherwise) at any time arising from or relating to your Account, any transferred balances or this Agreement (collectively, "Claims"), upon the election of you or us, will be resolved by binding arbitration pursuant to this Arbitration Provision and the Code of Procedure ("NAF Rules") of the National Arbitration Forum ("NAF") in effect when the Claim is filed.

* * *

Upon such an election, neither you nor we will have the right to litigate in court the claim being arbitrated, including a jury trial, or to engage in pre-arbitration discovery except as provided under NAF Rules. In addition, you will not have the right to participate as representative or member of any class of claimants relating to any claim subject to arbitration. Except as set forth below, the arbitrator's decision will be final and binding. Other rights available to you in court might not be available in arbitration.

(Id. at 982-983)(emphasis added).

CompuCredit Seeks Arbitration

CompuCredit filed a motion to compel arbitration, citing the arbitration provision in its customer agreement. Plaintiffs argued in response that the arbitration agreement was void under the CROA and void and unconscionable under California law. Id. at 984.

The dispute centers primarily on two phrases in the CROA:

  1. Customers must be informed that they “have a right to sue a credit repair organization that violates” the CROA, and
  2. “[A]ny waiver by any customer of any protection provided by or any right of the consumer . . . may not be enforced by any Federal or State court or any other person.” (Id. (quoting 15 U.S.C. § 1679f(a)).

The Northern District Court agreed with Plaintiffs and denied CompuCredit’s motion to compel arbitration, finding that based upon the provisions cited above “Congress intended claims under the CROA to be non-arbitrable” and the “arbitration is incompatible with CROA’s non-waivable right to sue.” Id. at 988. The Northern District of California subsequently granted class certification. Greenwood v. CompuCredit Corp., 2010 U.S. Dist. LEXIS 3839 (N.D. Cal. Jan. 19, 2010).

The Ninth Circuit Decision

CompuCredit appealed the denial of their motion to compel arbitration to the Ninth Circuit, which affirmed the District Court’s decision. Greenwood v. CompuCredit Corp., 615 F.3d 1204 (9th Cir. Cal. 2010).

The first key issue on appeal was whether the written disclosure required under the CROA explaining to customers the “right to sue” (a) actually creates a substantive right to sue, and (b) precludes arbitrations, which are not “lawsuits” in a court of law. Id. at 1208.

The Ninth Circuit found that the “right to sue” was a substantive right—even though the language is found only in the “Disclosures” section of the statute. Id. at 1209. Further, the Ninth Circuit analyzed the phrase “right to sue” and concluded that its plain meaning “clearly involves the right to bring an action in a court of law,” which does not include arbitration. Id.

The second key issue on appeal was whether the anti-waiver provision stating that a customer wavier of any right “may not be enforced by any Federal or State court or any other person.” Id. at 1210. CompuCredit argued that the “any other person” language demonstrates that Congress intended arbitrators to be able to decide CROA claims. Id. The Ninth Circuit disagreed, finding that this “any other person” language was meant to cover situations in which the credit repair organization instituted an arbitration proceeding against a consumer. Id.

The Ninth Circuit’s decision refusing to enforce CompuCredit’s arbitration provision despite the liberal federal policy favoring arbitration agreements in the Federal Arbitration Act, is in conflict with recent decisions in the Third and Eleventh Districts. See Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007) ("Although the statutes clearly contemplate consumers' actions being brought in a judicial forum . . . and to that extent may be said to recognize a consumer's right to proceed in court, they neither contain provisions creating such rights nor indicate that Congress . . . intended to exclude claims asserted under the CROA . . . from arbitration agreements."); Picard v. Credit Solutions, Inc., 564 F.3d 1249 (11th Cir. 2009) ("Although CROA requires credit repair organizations to inform consumers of their right to a private cause of action, such does not preclude arbitration under CROA").

The Ninth Circuit recognized this conflict and held that it was unpersuaded by the reasoning in both cases, finding that both the Third and Eleventh Circuits gave “surprisingly little regard” to the “right to sue” language. Id. at 2011.

The U.S. Supreme Court Takes the Case

The Supreme Court accepted certiorari and heard oral argument on October 11, 2011. The issue accepted on appeal is: Can a credit repair company require its customers to agree to arbitrate any claims against it under the CROA?

The Defense Research Institute and the Consumer Data Industry Association, a trade association supporting companies offering consumer information services, filed an amicus brief in support of CompuCredit (the Petitioner) urging reversal of the Ninth Circuit’s decision. For example, in its brief, DRI explained that Congress has expressed a strong federal policy for arbitration in the FAA and that this expectation is reflected in the settled expectations of both businesses and consumers.

The AARP, the National Senior Citizens Law Center (“NSCLC”), and the American Association for Justice, filed amicus briefs on behalf of the class (the Respondent) in support of affirming the Ninth Circuit decision. For example, in their brief, the AARP and NSCLC argued that the “right to sue” in the CROA is substantive and should be upheld.

Look for more coverage of this important case, including the transcript of court proceedings, in coming updates in On The Radar.