WASHINGTON (Legal Newsline) - The U.S. Supreme Court on Tuesday ruled in favor of so-called "credit repair organizations," saying they can block lawsuits by consumers if their agreements carry arbitration clauses.
The nation's high court reversed the judgment of the U.S. Court of Appeals for the Ninth Circuit.
The respondents in the case were consumers who applied for and received an Aspire Visa credit card marketed by petitioner CompuCredit Corp. and issued by Columbus Bank and Trust, now a division of petitioner Synovus Bank.
In their applications, the consumers agreed to be bound by a provision that read: "Any claim, dispute or controversy (whether in contract, tort or otherwise) at any time arising from or relating to your account, any transferred balances or this agreement (collectively, 'claims'), upon the election of you or us, will be resolved by binding arbitration..."
In 2008, the consumers filed a class action complaint against CompuCredit and Columbus in the U.S. District Court for the Northern District of California, alleging violations of the Credit Repair Organizations Act.
The act prohibits companies from engaging in deceptive practices and requiring up-front payments for services.
Most of the consumers' claims focused on the companies' allegedly misleading representation that the card could be used to rebuild poor credit and their assessment of multiple fees after opening accounts, which then greatly reduced the advertised credit limit.
The federal court denied the companies' motion to compel arbitration of the claims, concluding that "Congress intended claims under the CROA to be nonarbitrable." The Ninth Circuit affirmed.
The Court, in its 10-page opinion, attacked the lower courts' line of reasoning that the disclosure provision gives consumers the "right to sue," which "clearly involves the right to bring an action in a court of law."
"The flaw in this argument is its premise: that the disclosure provision provides consumers with a right to bring an action in a court of law. It does not," Justice Antonin Scalia wrote for the majority.
"Rather, it imposes an obligation on credit repair organizations to supply consumers with a specific statement set forth in the statute. The only consumer right it creates is the right to receive the statement, which is meant to describe the consumer protections that the law elsewhere provides."
The statement, he explained, informs consumers, for example, that they can dispute the accuracy of information in their credit file and that the credit bureau must then reinvestigate and modify or remove any inaccurate or incomplete information.
However, the consumers suggested that the CROA's civil liability provision demonstrates that the act provides individuals with a "right" to bring an action in court.
They cited the provision's repeated use of the terms "action," "class action" and "court" -- terms that they argued call to mind a judicial proceeding.
"These references cannot do the heavy lifting that respondents assign them," Scalia wrote.
"It is utterly commonplace for statutes that create civil causes of action to describe the details of those causes of action, including the relief available, in the context of a court suit.
"If the mere formulation of the cause of action in this standard fashion were sufficient to establish the 'contrary congressional command' overriding the (Federal Arbitration Act), valid arbitration agreements covering federal causes of action would be rare indeed. But that is not the law."
Still, the consumers -- and the lower courts -- insisted that if the CROA does not create a right to a judicial forum, then the disclosure provision effectively requires that credit repair organizations mislead consumers.
"We think not," Scalia wrote. "The disclosure provision is meant to describe the law to consumers in a manner that is concise and comprehensible to the layman -- which necessarily means that it will be imprecise."
The Court said because the CROA is silent on whether claims under it can proceed in an arbitrable forum, the FAA requires the arbitration agreement to be enforced according to its term.
Chief Justice John Roberts and justices Clarence Thomas, Stephen Breyer and Samuel Alito joined in the majority opinion. Justices Sonia Sotomayor and Elene Kagan concurred in the judgment but filed a separate opinion. Justice Ruth Bader Ginsburg filed a dissenting opinion.
From Legal Newsline: Reach Jessica Karmasek by email at firstname.lastname@example.org.