Wednesday, September 27, 2023
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Credit Repair Customers Can’t Waive Right to Sue

(CN) - In a case of first impression, the 9th Circuit ruled that consumers can't waive their right to file suit against credit repair organizations because a federal law explicitly prevents such waivers.

Wanda Greenwood, Ladelle Hatfield, and Deborah McCleese filed a nationwide class action against Compucredit Corp. and Columbus Bank and Trust. Plaintiffs were offered subprime credit cards under the name Aspire Visa. These cards allow consumers with poor or low credit ratings to allegedly improve their credit scores. Typically money is deposited in the account, and charges made with the card are paid with the deposited money.

The Aspire Visa cards, however, were offered to consumers with $300 in available credit that consumers would immediately receive when they were given accounts. The program was managed by defendant Compucredit, and the cards themselves were issued by Columbus Bank and Trust.

Hidden in the terms of the accounts, according to plaintiffs, were notices that a monthly $6.50 maintenance fee would be assessed, as well as a $29 finance charge and an annual $150 fee.

Plaintiffs sued defendants under the Credit Repair Organization Act (CROA), claiming the method of disclosure of these fees was impermissible.

Defendants moved to enforce an arbitration agreement included as part of the terms of the credit offer. Judge Claudia Wilken of the Northern District denied the motion.

"Plaintiffs argue that the court should not compel arbitration because the arbitration agreement is void under the CROA as to the national class ... because the CROA contains specific provisions disallowing any waiver of a consumer's right to sue in court for CROA violations.

"Each credit repair organization is required to (1) inform the consumer of his or her right to sue, (2) provide such information to the consumer in a separate document containing a verbatim copy of an eight paragraph text specified by Congress, (3) obtain from the consumer's signature confirming receipt of such information, and (4) keep such signed confirmations on file for two years from the date of signing.

"The written disclosure specifically states that consumers 'have a right to sue a credit repair organization that violates the Credit Repair Organization Act.' This disclosure document must be provided to every consumer before any contract or agreement between the consumer and the credit repair organization is executed.

"The issue of arbitration under CROA appears to be one of first impression in the Ninth Circuit. Only a few courts around the country have confronted this issue. A district court in Texas concluded that 'CROA's non-waiver of rights provision, combined with its proclamation of a consumer's right to sue, represent precisely the expression of congressional intent required by the Supreme Court to find that a waiver of judicial remedies is precluded.

"A district court in Alabama recently noted 'the striking congruence of the language used in the disclosure provision and the non-waiver provision convinces the court that Congress intended to create a right to go to court under CROA that cannot be waived.'

"The 3rd Circuit addressed this issue and held that...a consumer asserting claims pursuant to the CROA may...waive such rights.

"The 'right to sue' and non-waiver language used in CROA is different in important respects from other statutory language that the Supreme Court found not to preclude a waiver of judicial remedies. CROA contains express language which precludes waiving any right of the consumer. A plain reading of the statute dictates that one of those rights is the right to sue a credit repair organization that violates CROA.

"CROA specifically grants access to a judicial forum as a right and reveals no such flexibility toward alternative methods of dispute resolution.

"In sum, the court concludes that Congress intended claims under the CROA to be non-arbitrable. Requiring a dispute to be resolved through arbitration is incompatible with CROA's non-waivable right to sue. Therefore, the court finds that the arbitration clause is void."

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