Court gives short shrift to arbitration foes in predatory credit card dispute
on Oct 12, 2011 at 3:57 pm
The Court showed little interest in retreating from its vigorous support of arbitration on Tuesday, when it heard arguments in CompuCredit Corporation v. Greenwood. Greenwood involves an obscure statute, the Credit Repair Organizations Act (CROA), but an all-too-familiar product: the so-called “harvester” credit card largely outlawed by Section 105 of the CARD Act of 2009. CompuCredit is best known in consumer credit circles as the target of a 2008 FDIC enforcement action documenting the features of these cards, which typically come with a low credit limit (somewhere between three and five hundred dollars) and high up-front fees (typically more than one hundred dollars). Collectively, those features are likely to push the effective interest rate on purchases with the card far above one hundred percent per year. So CompuCredit is no stranger to dissatisfied customers.
But the regulatory hostility to CompuCredit’s products got not even a whisper of attention from the Court. To the contrary, the argument situated the case squarely within the line of cases broadly applying the Federal Arbitration Act (FAA) rule that enforces pre-dispute arbitration agreements. So when Michael McConnell (teaching at Stanford after his resignation from the Tenth Circuit) rose to challenge the Ninth Circuit’s conclusion that the CROA is an exception to the FAA, there was little suspense. He emphasized how similar the statute is to the Age Discrimination in Employment Act (the ADEA), which the Court interpreted in Gilmer as insufficiently precise to overcome the general FAA rule validating these agreements.
To be sure, McConnell did get a little pushback from the Justices. Justice Sotomayor, for example, suggested that the Ninth Circuit had identified a “meaningful” distinction from the ADEA. And Justice Ginsburg, probably the Justice least satisfied with the Court’s FAA jurisprudence, emphasized how the adhesive nature of credit card contracts made this a “take it or leave it” proposition that reflected no real consent to arbitration by the consumers who signed them. McConnell, naturally enough, emphasized that the Court repeatedly had enforced similar contracts against consumers. Although Justice Ginsburg’s skepticism suggests she is unlikely to agree with McConnell, she got relatively little support from the other Justices.
Indeed, what is most noteworthy about the argument is the relative placidity of the Court. When Scott Nelson rose to argue in support of the Ninth Circuit (against arbitration), Justice Sotomayor asked him if he agreed that it would violate the CROA even to present a contract with an arbitration clause to a consumer. When Nelson agreed that it was, Justice Sotomayor replied that she found this result absurd in light of the common pattern of arbitration agreements in consumer contracting. She wondered why Congress wouldn’t have been more specific if it intended such a striking result?
With similar skepticism, Justice Scalia emphasized another weak point of Nelson’s argument. Nelson agreed that the provision of the CROA that creates the cause of action is functionally identical to the ADEA provision the Court previously considered. Once he accepted that point, Nelson was left to argue that the summary of that provision in a required disclosure for consumers gives the cause of action a sufficiently different nature to change the result here from the result in Gilmer. Justice Scalia’s sardonic criticism was if anything less acerbic than you would expect.
The argument suggests little reason for a surprise: another FAA case in which a lower court found arbitration inappropriate, another case reviewing the Ninth Circuit – a reliably terse opinion to follow in short order. The principal question left probably is whether this will be the first decision of the Term. But given Justice Ginsburg’s consistent disagreement with the Court in FAA cases, and the consequent likelihood of dissent, this case presumably will be deprived of even that tiny bit of notoriety.