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U.S. Supreme Court Rejects Consumers' Right to Sue Over Credit Repair Scams

The Supreme Court ruled that credit repair companies can force consumers into arbitration notwithstanding the federal credit repair scam law that, AARP had argued, gave consumers a nonwaivable right to sue.

CompuCredit marketed a credit repair credit card promising "no deposit required" but which in fact charged consumers fees of almost $300 before they received the card. Wanda Greenwood alleged this violated the federal Credit Repair Organizations Act (CROA), which prohibits charging fees in advance for credit repair and requires disclosure of consumer rights, including the right to sue for violations of the CROA. CompuCredit moved to compel arbitration based on an arbitration clause in Greenwood's contract.
Arbitration is an informal system of dispute resolution with limited access to information, and from which there are typically no written findings or appeals. Companies increasingly include forced arbitration clauses with class action bans in their "take it or leave it" standard preprinted contracts for medical care, nursing home admissions, cell phone services, credit cards, employment and other transactions. Arbitration waives the right to a court or jury trial, access to relevant documents and other evidence, and to appeal. It can also be prohibitively expensive. Arbitrators are usually selected by the companies who write the contracts; this may make arbitrators biased toward repeat players. Finally, an arbitration involving an individual claim cannot force a business to provide a remedy for all the people injured by an illegal practice, as a court can in a class action. Companies favor arbitration over courts because it shields them from effective enforcement of consumer protection laws and allows them to avoid providing a remedy to the vast majority of victims.

The question in this case was whether CROA gives consumers a "right to sue in a court of law" that cannot be waived by a forced arbitration clause. AARP's brief, filed by attorneys with AARP Foundation Litigation and the National Senior Citizens Law Center, detailed the findings and intent of Congress as expressed during legislative debate and argued that CROA's explicit nonwaivable right to sue prevents CompuCredit from forcing its victims into arbitration.

The Supreme Court disagreed, ruling that silence in CROA on this specific issue (allegedly misleading information) means that case law favoring arbitration tilts the dispute in favor of arbitration. Justice Ginsberg's dissent echoed many of the arguments made by AARP's brief. She argued that companies should not be able to evade responsibility for substantive violation of law. Justices Sotomayor and Kagan, while concurring in the decision, noted that had CROA been explicit in rejecting arbitration they would have ruled with Ginsburg. Their opinion suggests that Congress could rectify the situation with an amendment to CROA.

What's at Stake
Despite targeted enforcement by federal agencies, older consumers — with reduced earning potential and significant other financial needs (i.e., health care) — lose almost $3 billion every year to fraud and financial abuse. Companies often keep ill-gotten gains because arbitration clauses buried deep in the contracts prevent consumers from participating in class actions to vindicate their rights and obtain a remedy.

Case Status
CompuCredit Corp v. Greenwood, decided by the U.S. Supreme Court, returns to the U.S. Court of Appeals for the 9th Circuit for further proceedings.

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