The Credit Repair Organizations Act (CROA), found at 15 U.S.C. § 1679, was enacted to ensure consumers of services of credit repair organizations are provided with the information necessary to make informed decisions regarding the purchase of such services; and to protect the public from unfair or deceptive advertising and business practices by credit repair organizations. Section 1679c of the CROA requires that credit repair organizations make certain written disclosures to consumers including that consumers have “a right to sue a credit repair organization that violates” the CROA. The CROA also contains a provision that voids any waiver by consumers of rights provided in the CROA. In a recent decision, Greenwood, et al. v. CompuCredit Corp., ---F.3d---, 2010 WL 3222415 (9th Cir. Aug. 17, 2010)(Thomas, J.), the Ninth Circuit disagreed with decisions from other circuits about whether arbitration agreements between credit repair organizations and consumers are enforceable when a consumer sues for violations of the CROA. Specifically, there is now a dispute among the circuits about what the word “sue” means as used in the CROA. Does the word “sue” as used in Section 1679c create a right for consumers to sue in court; or does the word “sue” encompass dispute resolution through arbitration?
In Greenwood, the Ninth Circuit concluded that an arbitration provision included in the terms of a subprime credit card’s customer agreement was void because the CROA specifically prohibits provisions waiving a consumer’s right to sue in court for CROA violations. The plaintiffs in Greenwood were a class of consumers that accepted pre-approved, subprime credit cards marketed to consumers with low or weak credit scores with representations that the card could be used to “rebuild your credit,” “rebuild poor credit,” and “improve your credit rating.” Plaintiffs sued the credit provider, CompuCredit, alleging that the company violated the CROA by issuing them a credit card with a $300 limit and charging $257 in fees during the first year. CompuCredit moved to compel arbitration pursuant to the arbitration provision in the terms of the subprime credit card’s customer agreement. The district court denied CompuCredit’s motion concluding that the arbitration provision was void because the CROA guarantees the right to “sue” in court and does not allow provisions waiving that right. CompuCredit filed a timely interlocutory appeal with the Ninth Circuit challenging the denial of the motion to compel arbitration.
CompuCredit made several arguments to the Ninth Circuit including that: (1) placing the “right to sue” language in the mandatory “Disclosures” section of the CROA did not actually create a right to sue; (2) the “right to sue” language was shorthand for the more “complicated” rights embodied in Section 1679g of the CROA; and (3) the “right to sue” language was used because it is more “understandable” than a broader phrase such as the “right to bring a claim.” The Ninth Circuit rejected each of these arguments as (1) yielding an absurd result; (2) rendering parts of the statute superfluous; and (3) interpreting the CROA in a way that goes against its purpose, respectively.
The Ninth Circuit acknowledged that its decision conflicts with decisions from the Third and Eleventh Circuits but reasoned that those circuit courts had given “surprisingly little regard to the ‘right to sue’ language in the statute, and rely upon reasoning in Supreme Court cases that are distinguishable from the situation here.”
In one of the decisions that conflicts with Greenwood, Gay v.CreditInform, 511 F.3d 369 (3d Cir. 2007), the Third Circuit found that an arbitration provision in an agreement with a credit repair organization was enforceable and that the “right to sue” language in Section 1679c of the CROA “does not specify the forum for the resolution of the dispute and therefore does not support [plaintiff’s] argument that the CROA provides a consumer with the right to bring suit in a judicial, rather than a arbitral, forum for CROA violations.” The Third Circuit also analogized to several Supreme Court cases enforcing arbitration agreements in different statutory contexts.
The Ninth Circuit described the Third Circuit decision in Gay as dispatching with the “right to sue” language in a footnote and ignoring the CROA’s anti-waiver clause. The Ninth Circuit also noted that the Supreme Court cases relied on by the Third Circuit were “unavailing.” Moreover, the Ninth Circuit declined to discuss the Eleventh Circuit case, Picard v. Credit Solutions, Inc., 564 F.3d 1249 (11th Cir. 2009), in detail because it essentially followed and adopted the reasoning in Gay.
Circuit Judge Tashima issued a dissenting opinion in Greenwood. Judge Tashima noted that there was a “liberal federal policy favoring arbitration agreements” and that plaintiffs bore the burden of showing that Congress intended to preclude a waiver of a judicial forum for CROA claims. The dissenting opinion also stated that “[n]othing cited by Plaintiffs suggests that Congress actually considered the issue of arbitrability of CROA claims, and the legislative history does not establish that Congress intended CROA claims to be non-arbitrable.”
Given the disparate conclusions from circuit courts that have addressed the issue, Greenwood is certain to spur debate (and litigation) about the meaning of the word “sue” as used in the CROA.