A District Court judge in Arkansas has granted a motion to compel arbitration filed by the defendants in a case accusing them of violating the Fair Debt Collection Practices Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, and the Equal Credit Opportunity Act, ruling the plaintiffs accepted a valid arbitration agreement when they activated and used their credit cards.
The background: The plaintiffs, who represented themselves, each opened credit card accounts with a bank by completing online applications. The bank mailed each plaintiff a letter containing the physical card and a copy of the cardholder agreement, which included an arbitration provision with a class action waiver and a 45-day window to opt out of arbitration.
- The plaintiffs made purchases and payments throughout the year but eventually stopped paying, and all three accounts were charged off. The accounts passed through a chain of sales among different companies before landing with a debt buyer, whose servicer managed the accounts.
- Last year, the plaintiffs filed suit against the bank, the debt buyer, and the servicer. The defendants moved to compel arbitration.
- The plaintiffs did not dispute entering into the cardholder agreements, but argued the arbitration provision was buried in the agreement and too expensive to be enforceable, that the defendants waived arbitration by not raising it in their answer, and that the debt buyer and servicer never signed the agreement and could not enforce it.
The ruling: Judge David Clay Fowlkes of the District Court for the Western District of Arkansas granted the motion and stayed the case pending the outcome of arbitration.
- The arbitration provision was anything but buried, Judge Fowlkes noted. The second page of the agreement flagged it, and the provision itself opened with a bolded, all-caps warning that it affected the cardholder’s legal rights. The plaintiffs never opted out and accepted the agreement by using their cards.
- The plaintiffs failed to provide any evidence that arbitration would be prohibitively expensive, beyond claiming the arbitration forum “demands $1,400 minimum.” Asked at the hearing about the actual cost, one plaintiff conceded, “there’s a lot of stuff around online that says, oh, $200, $250, but I can’t accept that. So I don’t know.” Judge Fowlkes also noted the plaintiffs managed to pay the $405 fee to file their lawsuit and never sought to proceed without paying fees.
- Whether the defendants waived their right to arbitrate is a procedural question reserved for the arbitrator, not the court, the judge ruled.
- Because the agreement incorporated the American Arbitration Association’s consumer rules, the question of whether the debt buyer and servicer can enforce arbitration despite never signing the agreement is also one for the arbitrator to decide.
