Oral argument in CompuCredit Corp. v. Greenwood, No.
10-948, (argument held October 11, 2011) addressing the
"Credit Repair Organizations Act," has confirmed that the
Supreme Court appears ready to define the potential reach of its
decision in AT&T Mobility LLC v. Concepcion, 131 S.
Ct. 1740 (2011), when called upon to do so by federal
statutes.
In May, Jones Day sounded a
cautionary note concerning the potential reach of the Supreme
Court's decision in Concepcion. While the
Concepcion Court held that states cannot, as a general
practice, void as unconscionable all arbitration clauses in
consumer contracts that also reject class arbitration, we warned
that subsequent statutory developments could drastically affect the
scope of the decision. Because Concepcion was decided on
federal preemption grounds, it does not prohibit another federal
law from restricting the enforceability of class-action waivers. We
noted that the Dodd-Frank Wall Street Reform and Consumer
Protection Act arguably allows the newly created Consumer Financial
Protection Bureau (the "Bureau") to propose (and perhaps
in the absence of Congress action upon the proposal, effectively to
enact) a regulatory "veto" of Concepcion as it
applies to companies engaged in consumer finance. The Bureau may
"prohibit or impose conditions or limitations on the use of an
agreement between a covered person and a consumer for a consumer
financial product or service providing for arbitration of any
future dispute between the parties," should the Bureau find
such regulation necessary to serve the public interest and protect
consumers.
On October 11, 2011, the
Supreme Court heard oral arguments in CompuCredit Corp. v.
Greenwood . CompuCredit involves the enforceability
of mandatory arbitration clauses in a consumer finance context.
Specifically, the Court will decide whether claims arising under
the Credit Repair Organizations Act ("CROA") can be
subject to arbitration despite a provision in the statute that
gives consumers the right to "sue." In
CompuCredit, a consumer class sued a company that marketed
subprime credit cards, and the bank that issued them, alleging that
the cards were marketed as a way to redeem poor credit, but that
high fees were not disclosed. Prior to receiving the card,
consumers were notified that by accepting, they waived the right to
proceed in any dispute as a class and agreed that all disputes
would be resolved through arbitration.
A split panel of the Ninth
Circuit had held that the credit card contracts' arbitration
and no class treatment provisions are unenforceable, finding that
the CROA prohibits any waiver of the right to sue. Greenwood v.
CompuCredit Corp., No. 09-15906 (9th Cir. Aug. 17, 2010). This
decision set up a circuit split, with the Eleventh and Third
Circuits upholding arbitration clauses on the basis that the right
to sue can be exercised in an arbitration context. See
generally Picard v. Credit Solutions Inc., 564 F.3d
1249 (11th Cir. 2009); Gay v. CreditInform, 511 F.3d 369
(3d Cir. 2007).
Throughout oral argument, the
Justices questioned counsel for both sides concerning the
interpretation of the CROA provision providing a "right to
sue" in the statute. Questioning addressed whether the express
right to sue could be carried forward in arbitration or could be
enforced only in a lawsuit. While it is always difficult to
interpret questioning from the Court as leading to any particular
result, questions addressed to counsel for both parties focused
upon the meaning of the CROA itself, and not merely a general
statement of preference for arbitration arising due to the Federal
Arbitration Act.
Whichever way the Court
construes the CROA statute's discussion of a right to sue, the
resulting opinion may shed light on the Court's approach to
arbitration as an alternative to litigation and, accordingly, to
the types of consumer class action waiver issues presented by
Concepcion. As we noted in May, these developments merit
continued study and vigilance. Early reports of Concepcion
as sounding a death knell to consumer class actions of all kinds
may well be premature.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.