Circuit Split on Credit Card Arbitration

Creating a split with the Third and Eleventh Circuits, the Ninth Circuit has held that a mandatory arbitration clause in a credit card agreement is unenforceable under the Credit Repair Organizations Act. The case, Greenwood v. CompuCredit Corp., was a class action stemming from a credit card marketed to consumers with weak credit as a card that would help “rebuild poor credit.” The plaintiff class alleged that the fees charged for the card violated provisions of the CROA and the California Unfair Competition Law. The card agreements included arbitration clauses calling for mandatory arbitration before the now-chastened National Arbitration Forum. The plaintiffs sought to void the arbitration agreements on grounds that CROA specifically precludes arbitration by expressly providing for an unwaivable “right to sue.” The district court agreed, and the Ninth Circuit affirmed, holding that:


[T]he plain language of the CROA provides consumers with the “right to sue.” 15 U.S.C. § 1679c. The “right to sue” means what it says. The statute does not provide a right to “some form of dispute resolution,” but instead specifies the “right to sue.” The act of suing in a court of law is distinctly different from arbitration. See Eljer Mfg., Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1254 (7th Cir. 1994) (“Arbitration . . . is a private system of justice” distinct from state and federal courts). The right to sue protected by the CROA cannot be satisfied by replacing it with an opportunity to submit a dispute to arbitration.


Consumer credit arbitration is so discredited right now that the case may not portend much. The Supreme Court certainly could decide it needs to resolve the circuit split, but it might also be content to let the Ninth Circuit have its way on this one, since consumer credit arbitration may be dying a natural death.

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