The U.S. Supreme Court has handed credit counseling agencies a major victory. By an 8-1 vote, on January 10, 2012, the Court ruled that lawsuits brought under the federal Credit Repair Organizations Act (“CROA”) can be subject to mandatory arbitration.
This is a profoundly significant decision with far-reaching positive implications for counseling agencies and others in the consumer financial services sector that in recent years have been the target of aggressive plaintiffs’ lawyers. Providers of consumer financial services can use this pro-arbitration ruling to help mitigate the threat of consumer class action lawsuits by using carefully drafted contract language. While not bullet-proof, consumer-friendly mandatory arbitration provisions with class-action waivers can reduce the risk of class-action lawsuits (or put companies in a better position to successfully defend them) by requiring consumers to pursue their claims through individual (not class) arbitration, and not through litigation (class-action or otherwise).
The Supreme Court ruling in CompuCredit Corporation and Synovus Bank v. Greenwood reverses a decision by the Ninth Circuit Court of Appeals that consumers had a right to sue under CROA. In addition, the Supreme Court last year, in AT&T Mobility v. Concepcion, overturned an appellate court decision that held that an arbitration clause in a consumer agreement containing a class-action waiver was unconscionable, and therefore unenforceable as a matter of law.
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