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Supreme Court says forced arbitration OK under credit repair law

January 10, 2012|By Jim Puzzanghera
  • The justices of the Supreme Court, shown in their official 2010 portrait, ruled Tuesday that credit repair companies can force consumers into arbitration to settle disputes.
The justices of the Supreme Court, shown in their official 2010 portrait,… (Tim Sloan / AFP/Getty Images )

Reporting from Washington — The Supreme Court ruled Tuesday that companies that try to repair a consumer's credit rating can force unhappy customers into arbitration rather than face lawsuits.

The case involved whether disputes over the cost of credit cards provided by CompuCredit Corp. of Atlanta should be handled in arbitration, which traditionally is more friendly to businesses, or must be allowed to go to court under a 1996 law covering credit repair companies.

The justices voted 8-1 in favor of CompuCredit, which asserted that disputes must by handled by arbitration.

The Supreme Court ruling reversed one by the U.S. District Court for the Northern District of California, which had been upheld by the 9th Circuit Court of Appeals in San Francisco, that customers of CompuCredit had a right to sue.

Justice Antonin Scalia, writing for the majority, said the 1996 Credit Repair Organizations Act was silent on whether claims under the law could go to arbitration. For that reason, CompuCredit was allowed to force such claims into arbitration under the Federal Arbitration Act.

Scalia rejected what he called the "obtuse" argument by the attorneys for consumers who challenged CompuCredit that Congress had not intended for companies to force disputes into binding arbitration.  

"At the time of the CROA’s enactment in 1996, arbitration clauses such as the one at issue were no rarity in consumer contracts generally, or in financial services contracts in particular," Scalia wrote. "Had Congress meant to prohibit these very common provisions in the CROA, it would have done so in a manner less obtuse than what respondents suggest."

Justice Ruth Bader Ginsburg was the only dissenter. She said that the specific "right to sue" that Congress had written into the Credit Repair Organizations Act could not be satisfied by arbitration. She criticized the Supreme Court majority for taking too legalistic an approach in interpreting a law designed for consumers.

"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. "The 'right to sue,' the court explains, merely connotes the vindication of legal rights, whether in court or before an arbitrator."

"That reading may be comprehensible to one trained to 'think like a lawyer,' ” she continued. "But Congress enacted the CROA with vulnerable consumers in mind — consumers likely to read the words 'right to sue' to mean the right to litigate in court, not the obligation to submit disputes to binding arbitration."

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