01/20/12 – SUPREME COURT RULING REGARDING CREDIT REPAIR ORGANIZATIONS ACT (CROA)
I. Executive Summary
The United States Supreme Court ruled almost unanimously last week in CompuCredit Corp v. Greenwood, No 10-948 (Jan. 10, 2012) that credit repair organizations can contractually subject claims (including class action claims) arising under the Credit Repair Organizations Act (CROA) to mandatory binding arbitration. CROA requires credit repair organizations to notify consumers that they "have a right to sue a credit repair organization that violates the Credit Repair Organization Act." CROA's nonwaiver provision provides that "any waiver by any consumer of any protection provided by or any right of the consumer under this subchapter- (1) shall be treated as void; and (2) may not be enforced by any Federal or State court or any other person." Thus, the consumer cannot waive its "right to sue." The lower courts held that these provisions, combined with CROA's other language referring to "actions," "class actions," and "court," guaranteed the consumer's right to sue in court. The Supreme Court summarily rejected that argument. Thus, credit repair companies that do not currently include a mandatory arbitration provision in their contracts should consult with counsel to consider whether doing so would best serve their business objectives. Remain mindful, however, that even though Congress does not regularly legislate in direct response to a Supreme Court opinion, it could effectively nullify the Court's decision by modifying CROA (or passing separate legislation) to specifically remove consumer claims asserted under CROA from the FAA's purview, and making clear that the "right to sue" guarantees a day in court.
II. Key Points Raised in the Court's Opinion, Concurrence and Dissent
Justice Scalia's opinion for the Court (joined by five other Justices) begins by emphasizing that the Federal Arbitration Act (FAA) "establishes a liberal federal policy favoring arbitration agreements," even when dealing with claims arising under federal statute. The opinion cites prior Supreme Court opinions holding that simply creating a federal statutory cause of action does not imply an exception to the FAA rule validating arbitration agreements. Justice Scalia acknowledged that statutes addressed in the Court's prior opinions did not contain CROA's non-waiver provision, but he reasoned that this non-waiver language does not protect the right to sue in court, but rather "the guarantee of the legal power to impose liability." Justice Scalia characterized CROA's mandated disclosure as a "colloquial" but "necessarily . . . imprecise" summary of the statute, and emphasized that such a summary -- even when mandated by statute -- cannot alter the meaning of the statute itself. And, in that analysis, the Court will hold that the FAA favors and protects mandatory arbitration provisions, unless that mandate is "overridden by a contrary Congressional command" clearly stated within the statute. Justice Scalia opined that CROA's language did not clearly state any such command.
Justice Sotomayor (joined by Justice Kagan) issued a concurring opinion, agreeing that that "opponents of arbitration . . . bear the burden of showing that Congress disallowed arbitration," and that CROA did not express such Congressional intent. However, the concurring Justices did not find the analysis as one-sided as did Justice Scalia and those joining in his opinion. In fact, Justice Sotomayor found the competing arguments equally compelling ("in equipoise"), but noted that such balance "required" the Court to resolve doubts in favor of arbitration.
Justice Ginsburg offered the only dissenting vote, consistent with her ardent opposition to the Court's broad interpretation of the FAA, as previously expressed in other dissenting opinions that she has authored or joined in earlier cases. While the Court starts with the premise that arbitration agreements are enforceable absent a strong statutory command, Justice Ginsburg focuses first on CROA's mandatory disclosure, opining that Congress drafted the required language solely to provide information to consumers. She then reasons that if ordinary consumers would understand the disclosure to promise them a nonwaivable right to go to court, then it is willfully perverse to find that the Congress that wrote the disclosure did not intend for consumers to have a right to go to Court.
III. What Does It Mean?
For now, the Supreme Court has convincingly held that a credit repair organization can include in its consumer contract a binding arbitration provision, and that such contractual language would require consumers to pursue any and all claims against the organization through arbitration (if the plain language of the provision so requires). Thus, credit repair companies that do not currently include a mandatory arbitration provision in their contracts should consult with counsel to consider whether doing so would best serve their business objectives. Be careful with using boilerplate language. Having an arbitration provision does no good if the plain language does not clearly accomplish the intended objective.
To avoid any confusion, please understand that the CompuCredit opinion did not in any way alter CROA's disclosure requirements. Credit repair companies must still provide the disclosure regarding the "right to sue," as well as all of the other disclosures that CROA mandates.
Be careful not to read the Court's opinion as an endorsement of the credit repair industry. Similarly, the opinion does not reflect any bias against credit repair. The Court addressed the interplay between CROA and the FAA, and provided very little dicta in its opinion. Justice Ginsburg's dissent included a few conclusory comments regarding CROA's purpose and Congressional intent, but didn't go too far afield in doing so. One would not expect the Court to gratuitously criticize the credit repair industry or question its legitimacy. However, the highly-critical amicus brief filed by the AARP and the National Senior Citizens Law Center certainly provided plenty of material had the Court wished to use it. That said, although CompuCredit is subject to CROA, it is not a "credit repair" company. In other words, don't read too much in either direction.
The Court's language to the effect of "if Congress meant to do something, it would have said so" echoes language that Judge Breyer used in analyzing CROA's advance fee prohibition in Ducharme v. Heath. Judge Breyer reasoned that had Congress intended for credit repair companies to only collect payment on a contingent basis, it would have specifically said so in CROA. Similarly, had Congress meant to preclude payment until a credit repair company had completed "all services," it could have done so instead of specifying "any service" and "such service." Justice Scalia, while addressing arbitration provisions in credit repair contracts, said: "Had Congress meant to prohibit these very common provisions in the CROA, it would have done so in a manner less obtuse than what respondents suggest." Any party arguing against an overbroad interpretation of CROA's advance fee prohibition will likely cite to Justice Scalia's words. However, they are by no means dispositive.
Congress will, in isolated instances, respond very quickly with legislation following a Supreme Court opinion. For example, in 2007, just two months after the U.S. Supreme Court issued a decision (Ledbetter v. Goodyear) making it harder for employees to bring pay discrimination claims under federal law, Congress took steps to reverse the high court's ruling and expand the damages that employees can recover in certain types of discrimination cases (The Lilly Ledbetter Fair Pay Act of 2007). In an election year, it would take a firestorm to spur such legislative action, but it bears watching. Congress is already considering the Arbitration Fairness Act, supported by 15 Democratic Senators. The Act would amend the Federal Arbitration Act to invalidate all arbitration clauses in consumer or employment contracts. However, many powerful (and well-funded) industry groups have mobilized to oppose the legislation, and it currently stands almost no chance in the Republican-controlled House.
Those who advocate efforts to modify various CROA provisions should keep in mind that doing so would provide Congress the opportunity to specify that CROA's right to sue supersedes the FAA's presumption favoring arbitration. If limited to CROA, such an issue could become a bargaining chip that Republicans might concede in order to obtain Democratic concessions on other issues. As the adage states: be careful what you ask for -- you just might get it.
Unless and until Congress acts to supersede the Supreme Court's CompuCredit opinion, however, credit repair companies should strongly consider whether a binding arbitration provision in their consumer contracts would best serve their business objectives.
Robert J. Witte
Strasburger & Price LLP
901 Main Street, Suite 4400
Dallas, TX 75202
