The United States Supreme Court has agreed to revisit the issue of whether a statute can override an arbitration clause in a consumer agreement. This time, at issue is the remedial legislation entitled Credit Repair Organization Act (CROA), which provides consumers with “the right to sue a credit repair organization” that violates the Act.

The case arose out of a class action by a number of consumers who applied for and received a card marketed as a tool to “rebuild poor credit” and “improve credit rating.” The consumers alleged that they were charged fees which had not been disclosed in the promotional materials. Before receiving the card, the consumers received an “Acceptance Certificate,” which included an arbitration agreement. The consumers brought an action in the Federal District Court alleging, inter alia, that the arbitration agreement violated CROA.

Decisions Below

The District Court concluded that the arbitration agreement was void. The Court interpreted CROA to prohibit provisions in consumer agreements which disallow waivers of a consumer’s right to sue in a court for CROA violations.

The United States Court of Appeals for the Ninth Circuit agreed. The majority opinion endorsed the principle, found in Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc., 473 U.S. 624 (1985), that “[h]aving made the bargain to arbitrate, the party should be held to it unless Congress itself has evinced an intention to preclude a waiver of judicial remedies for the statutory rights at issue.” (Emphasis added) It then relied on the statutory right enshrined in CROA “to sue a credit repair organization that violates” the Act and on the statutory anti-waiver clause, which provides that any waiver of a right by the consumer “shall be treated as void” and “may not be enforced by any Federal or State court,” to find the arbitration agreement void as a matter of statutory interpretation.

The minority opinion asserted that the “right to sue” does not mandate a judicial forum, and that CROA permits the resolution of disputes arising out of the alleged violation of the Act’s provision by arbitrators.

Reasoning similar to the minority opinion in Greenwood was adopted by two other Circuit Court decisions. In both Gay v. CreditInform, 511 F.3d 369 (3d Cir. 2007) and Picard v. Credit Solutions, Inc., 564 F.3d 1249 (11th Cir. 2009), the Courts concluded that, since the “right to sue” clause does not mandate a judicial forum, it does not preclude arbitration agreements. The courts in Gay and Picard were apparently per incuriam in respect of CROA’s waiver clause.

Potential Significance

The appeal will resolve a conflict which has arisen at the circuit court level in regards to the interpretation of CROA and will provide another contribution to U. S. Supreme Court’s jurisprudence on the subject of the enforceability of arbitration clauses in the face of apparently conflicting statutory provisions (see, e.g., Mitsubishi Motors Corp. v. Soler Chrysler Plymouth, Inc. 473 U.S. 614 (1985); Gilmer v. Interstate / Johnson Lane Corp., 400 U.S. 20 (1991); Green Tree Fin. Corp. – Ala. v. Randolph, 531 U.S. 79 (2000)).

In Canada, the appeal’s significance is in its potential to open a rift between Canadian and American judicial interpretation of provisions in consumer protection legislation aimed at disallowing arbitration clauses in consumer agreements. Indeed, in Seidel v. TELUS Communications Inc., 2011 SCC 15, the Supreme Court of Canada permitted a consumer class action to proceed in court, in the face of an arbitration clause in a cellular phone service contract, on the basis of its interpretation of the Business Practices and Consumer Protection Act of British Columbia. The majority of the Supreme Court of Canada emphasized that “BCPA is all about consumer protection. As such, its terms should be interpreted generously in favour of consumers”. The Court, stated, further that “[i]t is clearly open to a legislature to utilize private consumers as effective enforcement partners operating independently of the formal enforcement bureaucracy and to conclude that the most effective form is not a ‘private and confidential’ alternative dispute resolution behind closed doors, but very public and well-publicized proceedings in a court of law.

Should the U. S. Supreme Court hold that the arbitration agreement in Greenwood is enforceable, and opt for a stricter interpretive approach which gives greater weight to freedom of contract considerations, the two countries’ approaches to statutory interpretation in this context will conflict.

Case Information

CompuCredit Corp. v. Greenwood, 563 US __ – Supreme Court 2011

Hearing Date: October 11, 2011