U.S. Supreme Court provides a blueprint to Congress on how to ban contractual arbitration provisions in consumer contracts

On January 10, 2012, the U.S. Supreme Court released its decision in CompuCredit v. Greenwood, Supreme Court No. 10-048.   At issue in the case is whether the Credit Repair Organizations Act (CROA), 15 U. S. C. §1679 et seq., precludes enforcement of an arbitration agreement in a lawsuit alleging violations of that Act.  Reversing the Ninth Circuit, the Court held that had Congress meant in the CROA to prohibit these common arbitration provisions, it would have done so “with a clarity that far exceeds the claimed indications in the CROA.”  Id. at 9.

What does all of this mean for companies not subject to the CROA but concerned about enforcing arbitration provisions in their consumer contracts?  It means this: unless specifically prohibited by statute in no uncertain terms, the FAA requires that contractual arbitration provisions—including class action waivers—be enforced according to their terms.

CompuCredit also reaffirms that Congress—and not the Court—has the final say on what kinds of disputes may be subject to arbitration.  The case essentially gives Congress a blueprint on how to prohibit contractually agreed-upon arbitration where it sees fit.   For example, CompuCredit mentions specifically the Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U. S. C. §5518(b)), which grants the recently created Consumer Financial Protection Bureau the authority to:

prohibit or impose conditions or limitations on the use of an agreement between [a person engaged in providing a consumer financial product or service] and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties, if the Bureau finds that such a prohibition or imposition of conditions or limitations is in the public interest and for the protection of consumers.

(12 U. S. C. §5518(b.))

In other words, if the Bureau finds that prohibiting all mandatory arbitration in all consumer financial services contracts is in the public interest, the Bureau can make it happen—regardless of the Court’s recent decisions regarding the liberal federal policy toward enforcing arbitration agreements set forth in the FAA.

To read the full article, click here.

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