Continuing its growing line of cases in favor of enforcing arbitration agreements, the U.S. Supreme Court has upheld an arbitration agreement containing a class action waiver and requiring the arbitration of consumer claims brought under the Credit Repair Organizations Act (“CROA”). The Court ruled that because the CROA was silent on whether statutory claims had to be litigated in court (despite the CROA’s requirement that consumers be informed of their “right to sue”), the Federal Arbitration Act required that the parties’ arbitration agreement be enforced, “according to [the agreement’s] terms,” including its class action waiver. CompuCredit Corp. v. Greenwood, No. 10-948 (Jan. 10, 2012).
Facts
The plaintiffs were individuals who had applied for and received a Visa credit card marketed by the defendant CompuCredit. The credit card applications included a broad arbitration agreement providing that any claim or dispute relating to the card accounts “will be resolved by binding arbitration.” The form agreement barred class action proceedings.
The CROA regulates the practices of so-called credit repair organizations, companies that offer services or other assistance to consumers seeking to improve their credit record. The law requires that the consumer receive a written disclosure stating, among other things, that they had a “right to sue” for violations of the Act. The CROA contains a provision prohibiting the waiver by the consumer of any protection or right under the law. The plaintiffs brought a class action complaint in federal court alleging that CompuCredit violated the CROA by making misleading representations regarding their credit limit and the ability of the credit card to “rebuild” the plaintiffs’ poor credit history. CompuCredit filed a motion to compel arbitration. The District Court denied the motion. The Court of Appeals affirmed, holding that the CROA’s disclosure and non-waiver provisions, along with repeated use of the terms “action,” “class action,” and “court,” precluded enforcement of the arbitration provision.
Supreme Court’s Decision
The Supreme Court reversed. By an 8-1 decision, it held that the CROA did not preclude mandatory arbitration agreements in consumer contracts and that CompuCredit’s arbitration agreement had to be enforced according to its terms. The Court based its decision on two grounds.
First, reviewing the language of the CROA’s notification clause, the Court found the law did not provide a right to bring a lawsuit in court. Rather, the Act gave consumers the right to receive a written disclosure statement that describes their legal rights “in a manner that is concise and comprehensible to the layman,” which, the Court wrote, necessarily will be “imprecise.” The “right to sue” language in the written disclosure statement did not prohibit arbitration. According to the Court, that language was “a colloquial method of communicating to consumers that they have the legal right, enforceable in court, to recover damages” for violations of the CROA. Other statutes, the Court said, including the Age Discrimination in Employment Act, gave individuals the right to bring a civil action in court and the Court previously had held that arbitration “satisfies the statutory prescription of civil liability in court.” Because the CROA did not confer a right to initial judicial enforcement, CompuCredit’s mandatory arbitration provision did not constitute a waiver of any “right of the consumer,” and therefore was not barred by the CROA’s non-waiver provision.
Second, the Court noted that at the time the CROA was enacted (in 1996), arbitration clauses in consumer contracts were common. It reasoned that if Congress had intended to prohibit such clauses, Congress would have done so directly. The Court gave several examples of statutes that explicitly prohibited mandatory arbitration provisions, in contrast to the CROA.
Implications
CompuCredit is the most recent example of the Supreme Court’s affirmation of the strong federal policy favoring arbitration agreements. The use of arbitration provisions in employment contracts continues to be a subject of judicial, legislative and regulatory interest. Employers who utilize or may want to utilize arbitration agreements should consider seeking legal advice in the drafting and implementation of such agreements to ensure enforceability of the agreements. Jackson Lewis attorneys regularly provide such advice.
