It seems likely that the U.S. Supreme Court will soon resolve the conflict among the Circuits on whether claims brought under the Credit Repair Organizations Act (CROA) are subject to arbitration.

On January 24, 2011, a petition for a writ of certiorari was filed in the Supreme Court to review the judgment of the Ninth Circuit Court of Appeals in Greenwood v. CompuCredit Corporation and Synovus Bank, 615 F. 3d 1204 (9th Cir. 2010). A divided panel of the Ninth Circuit held that CROA claims are not subject to arbitration pursuant to an arbitration agreement between a credit repair organization (CRO) and a consumer. It relied on the following CROA provisions:

  • That a CRO disclose certain of the “rights” afforded the consumer under the CROA, in particular the “right to sue” over CROA violations
  • That “[a]ny waiver by any consumer of any protection provided by or any right of a consumer under” the CROA “shall be treated as void” and “may not be enforced by any federal or state court or any other person”

The Ninth Circuit acknowledged that its decision is in conflict with the opinions of two other Circuits: Gay v. CreditInform, 511 F. 3d 369 (3d Cir. 2007), and Picard v. Credit Solutions, Inc., 564 F. 3d 1249 (11th Cir. 2009). The dissenting judge on the Ninth Circuit panel agreed with the decisions in the Third and Eleventh Circuits, which held that, although the CROA’s disclosure provision mentions a “right to sue,” it does not purport to create any substantive rights; its sole purpose is to require disclosure of a substantive right afforded under another CROA section creating civil liability for CROA violations. The Third and Eleventh Circuits found that the civil liability section nowhere mandates a judicial forum. They, along with the Ninth Circuit dissenting judge, also rejected the majority’s reliance on the CROA antiwaiver language because it prohibits any waiver of the CROA, not only by a federal or state court but by “any other person,” which they decided includes an arbitrator.

Based on the Supreme Court’s prior decisions on the arbitrability of federal claims, the odds seem to favor the petitioners. In the past 25 years, the Supreme Court has not once denied the arbitrability of a federal statutory cause of action. This includes claims brought under the Truth in Lending Act, Age Discrimination in Employment Act, Securities Act of 1933, Securities Exchange Act of 1934, and federal antitrust laws. Indeed, the Supreme Court has upheld the enforceability of an arbitration provision even when the cause of action in the relevant federal statute explicitly referred to “courts” as the forum for adjudicating civil claims—something the CROA does not do. It seems likely that the Supreme Court will reverse the Ninth Circuit.

Although the Greenwood case is a putative class action, the issue before the Supreme Court does not involve any challenge to the validity of the class action waiver in the arbitration agreement, either under the CROA or California law. The Supreme Court will soon issue its decision in AT&T Mobility LLC v. Concepcion on whether the Federal Arbitration Act preempts California law holding that a class action waiver is unconscionable in a small-dollar consumer claim. Click here to read a legal alert on that case.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs), its guidance in structuring and documenting new consumer financial services products, and its experience with the full range of federal and state consumer credit laws throughout the country. For further information, please contact Alan S. Kaplinsky, Group Chair, at 215.864.8544 or kaplinsky@ballardspahr.com; Jeremy T. Rosenblum, Group Vice Chair, at 215.864.8505 or rosenblum@ballardspahr.com; Mark J. Levin, 215.864.8235 or levinmj@ballardspahr.com; or Martin C. Bryce, Jr., 215.864.8238 or bryce@ballardspahr.com.


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