Advertising Law Blog

The Supreme Court has ruled that the Federal Arbitration Act trumps the Credit Repair Organizations Act, and consumers who agree to terms containing an arbitration clause have waived their right to sue in court. In Compucredit Corp. v. Greenwood, consumers brought a class-action lawsuit against a credit card marketer and the card's issuing bank, alleging that fees they were charged for the Aspire Visa credit card were illegal. The credit card application completed by the consumers contained a provision that read, "Any claim, dispute or controversy (whether in contract, tort, or otherwise) at any time arising from or relating to your Account, any transferred balances or this Agreement, upon the election of you or us, will be resolved by binding arbitration." The consumers filed suit in California federal court, and the defendants sought to have the case dismissed and the arbitration clause enforced. The trial court and the appellate court ruled that the arbitration clause could not be enforced because Congress never intended for claims under the Credit Repair Organizations Act to be subject to arbitration.

The credit card marketer and the bank appealed to the Supreme Court, and in a ruling issued in January 2012, the Supreme Court reversed the two lower courts' rulings. It found that even though the Credit Repair Organizations Act is silent on whether claims can be arbitrated, the Federal Arbitration Act requires that the arbitration clause contained in Aspire Visa's terms and conditions be enforced according to its terms. In order for a statute to bar arbitration, a majority of the Supreme Court held that such a statute must explicitly forbid arbitration. Mere silence on the issue of arbitrability is not sufficient to stop merchants from requiring arbitration. For example, one federal statute contains the following provision: "No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section." That kind of wording guarantees plaintiffs the right to file a lawsuit, but the Credit Repair Organizations Act contains no such terms.

TAKE AWAY: The Supreme Court's decision continues the current judicial trend that favors the enforcement of arbitration clauses. If you sell goods or services to the public, you should strongly consider adding arbitration clauses and class action waivers to your terms and conditions that are accepted by the consumer.