Corporate Court Rewrites Credit Law to Favor the 1%

Yesterday, the Supreme Court issued an 8-1 opinion in CompuCredit v. Greenwood, written by Justice Scalia, that will bring cheer to powerful corporations that break the law and leave everyday consumers feeling shell-shocked. It turns out that a congressional requirement that companies tell consumers that they have the "right to sue" really doesn't mean much.

CompuCredit is a "credit-repair company" that marketed a subprime credit card to vulnerable consumers with bad credit. It told them that no deposit was required and that they would get $300 in credit upon issuance of the card. However, in small print separate from the "no deposit" promise, it disclosed that it would charge $185 in fees immediately and $257 in fees over the first year. The customers filed a class action lawsuit on behalf of others who were taken in, saying that CompuCredit violated the federal Credit Repair Organization Act (CROA).

However, CompuCredit had required its customers, as a condition of getting the credit card, to sign away their right to sue in a court of law or to engage in any type of class action, forcing them to agree to one-on-one binding arbitration instead. So the company demanded that the class action suit be thrown out of court, citing an obscure but devastatingly important federal law called the Federal Arbitration Act, which generally requires courts to enforce contracts requiring arbitration agreements unless a specific federal statute says otherwise.

The question was whether CompuCredit had the right to make its customers sign a contract agreeing to arbitration. CROA requires credit providers to specifically tell customers in writing that "you have a right to sue," a requirement that CompuCredit had met. In addition, CROA specifically prohibits any contractual provisions that waive a customer's rights under the statute. So the customers argue that their agreement to forego their right to sue in court is void.

In order to rule for the large company that cheated its vulnerable customers, the six-Justice majority opinion had to turn logic on its head. The five conservatives, joined by Justice Breyer, explained with a straight face that:

[The phrase "right to sue"] is a colloquial method of communicating to consumers that they have the legal right, enforceable in court, to recover damages from credit repair organizations that violate the CROA. We think most consumers would understand it this way, without regard to whether the suit in court has to be preceded by an arbitration proceeding.

Yes, it turns out that everyday people interpret the "right to sue" as including private arbitration. If this bizarre supposition didn't hurt so many innocent people, it would be laughable. At least Justices Sotomayor and Kagan, in their concurrence, recognized that the people the statute was designed to protect might interpret "right to sue" to mean "right to sue in court." Unfortunately, even they felt it was a close call as to whether that's what Congress intended.

Only Justice Ginsburg got this one right. As she wrote in her dissent:

The "right to sue," the [majority] explains, merely connotes the vindication of legal rights, whether in court or before an arbitrator. That reading may be comprehensible to one trained to "think like a lawyer." But Congress enacted the CROA with vulnerable consumers in mind—consumers likely to read the words "right to sue" to mean the right to litigate in court, not the obligation to submit disputes to binding arbitration.

Congress wrote this law for the 99%. Yesterday, the Corporate Court rewrote it for the 1%.

PFAW