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The arbitration of claims brought under the Credit Repair Organization Act (CROA) and other state consumer protection laws was not fraudulently induced, unconscionable, waived, or otherwise forbidden due to the organization's criticism of the use of arbitration in other circumstances, according to a Michigan federal court.
In Rex v. CSA-Credit Solutions of America, Inc., No. 106-CV-633, 2007 WL 1875858 (W.D. Mich. June 27, 2007), credit repair service CSA sought to compel arbitration of Rex's various claims under federal and state consumer protection laws, alleging that all were arbitrable under the parties' "Client Service Agreement," which contained an arbitration clause. Rex opposed the motion to compel, alleging that the agreement to arbitrate was fraudulently induced, unconscionable, waived, and not contemplated under the Credit Repair Organization Act (CROA).
The Court first rejected Rex's claim that the agreement was fraudulently induced merely "because [CSA] made a series of statements indicating that arbitration is not fair to consumers." The Court found these statements about other situations where arbitration may be unfair to consumers insufficient to establish fraudulent inducement in this case, because Rex "ha[d] not alleged any relationship between these statements and his decision to entered into the arbitration clause" with CSA.
Next, the Court failed to find either procedural or substantive unconscionability in the agreement to arbitrate. While Rex alleged procedural unconscionability due to lack of market choice and unequal bargaining power, the Court instead focused on "surprise or oppression," and found neither, since the clause was clearly labeled within the agreement and there was no specific showing of surprise or oppression by Rex. Rex also alleged substantive unconscionability in the agreement "because it imposed disproportionate costs on the consumer," requiring Rex to travel from Michigan to Texas to pursue his claims. The Court acknowledged such costs could constitute unconscionability if a "likelihood of incurring such costs" was shown, but since CSA had agreed to arbitrate the claims near Rex in Michigan, instead of near CSA in Texas, there was no such likelihood and no basis for finding substantive unconscionability.
Then, the Court addressed Rex's argument that CSA waived its right to arbitrate, either by "repudiating" arbitration in general through general statements or by attempting to settle and failing to assert right to arbitration in a pre-litigation setting in front of the Better Business Bureau. Again, the Court found general negative statements about other arbitrations did not repudiate arbitration or waive a right to compel arbitration. The Court also found that requiring a party to request arbitration "prior to the initiation of litigation would be inconsistent with the general purpose of arbitration - avoiding the expenses often associated with litigation," and refused to find waiver in such a situation.
Finally, the Court refused to find any evidence within the CROA that Congress intended to preclude arbitration of those statutory claims. While the Court noted language within the Act did refer to the "right to sue" in the context of required consumer disclosures, the Court held this did not convey a right or protection to consumers. Instead, the Court looked to the language of a different section, § 1679g(a), that "provides the actual right to bring a claim," and found it "d[id] not contain any language indicating that claims under the CROA are nonarbitrable." Furthermore, the Court observed that "[n]either party ha[d] identified any part of the CROA's legislative history that specifically addresses arbitration," nor had either shown any inherent conflict between the use of itration and the protection of consumers.
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