The good news for proponents of arbitration in consumer
contracts is that the United States Supreme Court's opinion in
CompuCredit Corp. v. Greenwood, No. 10-948 (Jan. 10, 2012)
continued the run of arbitration-friendly decisions that included
AT&T Mobility v. Concepcion, No. 09-893, 563 U.S. ____
(Apr. 27, 2011) ("Concepcion").
CompuCredit clearly held that any attempt by Congress to
exempt certain categories of contracts from application of the
Federal Arbitration Act ("FAA") must be explicit. Under a
little-noticed provision of Dodd-Frank, however, the holdings in
both CompuCredit and Concepcion may be subject to
congressional or regulatory review based on a study that the
Consumer Financial Protection Bureau ("CFPB") is directed
to carry out.
In CompuCredit, consumers urged that language in the
federal Credit Repair Organization Act ("CROA"), stating
that a consumer has "a right to sue a credit repair
organization" that violated CROA provisions, exempted
contracts with credit repair organizations from the general federal
policy favoring arbitration. After CompuCredit moved to compel
arbitration of a consumer group's putative CROA class action
based on a clause in its standard contract, the consumers urged
that CROA's "right to sue" provision exempted
contracts with credit repair organizations from the reach of the
FAA. In August 2010, the Ninth Circuit affirmed the Northern
District of California's decision denying CompuCredit's
motion and accepting the consumers' arguments. The United
States Supreme Court reversed, citing the FAA and
Concepcion. Justice Scalia wrote the opinion for the Court
and held that any congressional exclusion of particular classes of
contracts from arbitration must be clear. Statutory references to a
"right to sue" and to "an action" in a statute
are not sufficiently explicit.
This may not be the end of the story in the consumer context,
however. As noted in the April 2011 Jones Day Commentary,
"Does Dodd-Frank Provide
the Seeds to Unravel Concepcion in Consumer Financing
Transactions?," Sections 1028(a) and (b) of
Dodd-Frank direct the CFPB to study mandatory arbitration clauses
in contracts between consumers and any person or entity
"offering or providing a consumer financial product or
service." The CFPB is then to report its findings to Congress
under Sections 1002(6) and 1028(a). Section 1028(b) also states
that the CFPB may issue regulations prohibiting, conditioning, or
limiting arbitration clauses in consumer contracts with a
"covered entity" for "a consumer financial product
or service" if it finds that such an action is "in the
public interest and for the protection of consumers." Thus,
even while Congress is considering an eventual report from the
CFPB, the CFPB may be authorized to move forward with regulations
of its own. Potential regulations may run the gamut from
prohibiting predispute arbitration clauses in covered contracts
altogether, to purporting to prohibit class treatment in contracts
that have predispute arbitration provisions (in effect, making the
"price" of an arbitration clause the lender's
willingness to potentially face classwide arbitration), to
making no substantive changes at all.
The recent appointment of Richard Cordray to head the CFPB, during
what may or may not have been a congressional "recess,"
may increase the confusion further, particularly as the validity of
any regulations may depend, in part, upon the validity of that
appointment. In any event, prudent companies in the consumer arena
should monitor CFPB releases regarding its study and report
process, paying particular attention to opportunities to provide
input and empirical information. Because the resulting regulatory
or rulemaking efforts may well provide the equivalent of a
congressional or regulatory reexamination of the holdings in
Concepcion and CompuCredit, companies should
continuously monitor events affecting their arbitration
clauses.
Jones Day's Consumer Financial Products & Services team
advises clients regarding the issues discussed in this
Alert, including the ongoing development of arbitration
clauses as a result of the Concepcion and
CompuCredit decisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
