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Credit Repair Act Doesn't Assure Day In Court: Justices

The U.S. Supreme Court ruled Tuesday that the Credit Repair Organizations Act doesn't guarantee consumers the right to sue credit-repair companies in court, siding with CompuCredit Corp. in its bid to force arbitration of claims that it misled consumers seeking to rebuild their credit.

In an 8-1 vote, the Supreme Court ruled that the CROA does not override arbitration agreements like those signed by CompuCredit's consumers — the latest arbitration-friendly opinion since the high court's ruling in April that the Federal Arbitration Act preempts state laws that invalidate class action waivers.

While ruling that the CROA was "silent" on whether claims through that law can proceed through arbitration, the court on Tuesday acknowledged that law contains "imprecise" language requiring credit-repair companies to notify consumers of their "right to sue."

"This is a colloquial method of communicating to consumers that they have the legal right, enforceable in court, to recover damages from credit-repair organizations that violate the CROA," the majority opinion said. "We think most consumers would understand it this way, without regard to whether the suit in court has to be preceded by an arbitration proceeding. Leaving that possibility out may be imprecise, but it is not misleading."

The high court's opinion overturns a Ninth Circuit decision that denied CompuCredit's bid to compel arbitration, and it effectively puts an end to a proposed class action alleging the company misled consumers into believing its cards would help them rebuild their poor credit.

In siding with CompuCredit, the majority found that the Federal Arbitration Act guarantees that the agreement must be enforced according to its terms because of the law's silence on the arbitration issue.

"Had Congress meant to prohibit these very common provisions in the CROA, it would have done so in a manner less obtuse that what respondents suggest," said the majority opinion, signed by Justices John Roberts, Anthony Kennedy, Clarence Thomas, Stephen Breyer and Samuel Alito. Justice Sonia Sotomayor filed an opinion concurring with the majority, onto which Justice Elena Kagan signed.

The case prompted a dissent from Justice Ruth Bader Ginsberg, who said Congress enacted the CROA for the benefit of consumers who would interpret the words "right to sue" as the right to court litigation.

"The court today holds that credit-repair organizations can escape suit by providing in their take-it-or-leave-it contracts that arbitration will serve as the parties' sole dispute-resolution mechanism," she wrote.

Justice Sotomayor said that it was plausible Congress intended to promise consumers a right to sue in court, but added that interpretation was "no more compelling" than the one asserted by CompuCredit.

The Supreme Court based its reversal of that opinion on a straightforward interpretation of the CROA, CompuCredit lawyer Michael W. McConnell of Kirkland & Ellis LLP told Law360.

"It's not based on particular policy judgments — that's left to Congress," he said.

Meanwhile, Scott Nelson, who represents the consumers, said that the ruling should send Congress a message that it must use very clear language in its statutes if it wants to protect citizens' right to go to courts.

The Supreme Court has been leaning heavily toward granting companies the right to force arbitration, he said.

"Congress, if it wants to do something about it, needs to put a heavy weight on the other side," Nelson said. "This is not an isolated ruling."

CompuCredit marketed its Aspire Visa credit card to consumers with poor credit ratings, urging them to acquire it in order to improve their credit, the plaintiffs had alleged, according to the minority opinion. While the company said the card required no deposit and they would receive $300 in credit, consumers claimed that in reality they were charged fees against that limit, including an annual $150 fee.

The Ninth Circuit said in its August 2010 opinion that it was tasked with examining whether the word "sue" in the CROA also meant "arbitrate."

"Or perhaps the question is, as Alice put it: 'whether you can make words mean so many different things,'" the Ninth Circuit opinion said. "We conclude that Congress meant what it said in using the term 'sue,' and that it did not mean 'arbitrate."

CompuCredit is represented by Michael W. McConnell, Pat A. Cipollone, Michael F. Williams and John C. O'Quinn of Kirkland & Ellis LLP as well as by Sri Srinivasan of O'Melveny & Myers LLP.

Named plaintiff Wanda Greenwood is represented by Scott L. Nelson of Public Citizen Litigation Group and by W. Loyd Copeland of Taylor Martino PC.

The case is CompuCredit Corp. et al. v. Wanda Greenwood et al., case number 10-948, in the U.S. Supreme Court.