US Supreme Court Briefs

No. 99-1235
) 4 2~3flfl
C
INTHE
SUPREME COURT OF THE UNITED STATES



GREEN TREE FINANCIAL CORP.-- ALABAMA and GREEN TREE FINANCIAL CORPORATION,
Petitioners,
V.


LARKEYIA RANDOLPH,
Respondent.


ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT


BRIEF AMICI CURIAE OF AARP
AND THE NATIONAL CONSUMER LAW CENTER
IN SUPPORT OF RESPONDENT


ELIZABETH RENUART THE NATIONAL CONSUMER LAW CENTER
18 Tremont Street, #400
Boston, MA 02108
(617) 523-8010

Counsel for Amicus Curiae
THE NATIONAL CONSUMER
LAW CENTER
STACY CANAN
JEAN CONSTANTINE-DAVIS
NINA F. SIMON*
DEBORAH ZUCKERMAN
AARP FOUNDATION LITIGATION

MICHAEL R. SCHUSTER AARP

601 E Street NW
Washington, DC 20049
(202) 434-20~0

Corinsel for Amicus Curiae
AARP
*Cn,,n~p1 of Record

TABLE OF CONTENTS
Page
TABLE OF AUTHORiTIES iii
INTEREST OF AMJCI CURiAE 1
SUMMARY OF ARGUMENT 3
ARGUMENT 4

I. CONGRESS ENACTED THE TRUTH IN
LENDING ACT TO REGULATE CREDIT
INDUSTRY PRACTICES AND PROTECT
CONSUMERS 4
A. TILA's Text, Purpose, and Legislative
History Reflect the Pivotal Role of Private
Attorney General Enforcement 6
1. TILA Damages Effectuate Private
Attorney General Enforcement 7
2. TILA's Fee-shifting Provisions
Effectuate Private Attorney
General Enforcement 9
3. TILA's Class Action Provision
Effectuates Private Attorney
General Enforcement 10

II. ARBITRATION AGREEMENTS SUCH AS
GREEN TREE'S THAT PREVENT CONSUMERS
FROM EFFECTIVELY VINDICATING THEIR
STATUTORY RIGHTS UNDERMINE THE
TRUTh IN LENDING ACT'S REMEDIAL
PURPOSE 15
11


A. Arbitration Contracts That Require Claimants to Pay Fees Undermine TWA
Enforcement 15
B. Arbitration Contracts That Preclude Class
Actions Undermine TILA Enforcement 19
1. Arbitration Is Not Suitable for
Class-wide Adjudication 22
2. The Demise of Class Actions
Would Create a Void In TILA
Enforcement 23
C. Unwritten Arbitration Decisions Undermine
TWA Enforcement 24

D. Green Tree's Arbitration Clause is Typical of
Those Designed to Prevent Consumers From
Acting as Private Attorneys General Under
TWA 27
CONCLUSION 28
Appendix 1 Al-i
Appendix 2 A2- 1
111


TABLE OF AUTHORITIES

CASES
Adams v. Plaza Fin. Co., 168 F.3d 932 (7th Cir. 1999) 14
Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) 19

American Centennial Ins. Co. v. National Cas. Co.,
951 F.2d 107 (6th Cir. 1991) 20

Aquino v. Public Fin. Consumer Discount Co.,
606 F. Supp. 504 (E.D. Pa. 1985) 6, 7

Baesler v. Continental Grain Co., 900 F.2d 1193
(8th Cir. 1990) 20
Balderos v. City Chevrolet, 214 F.3d 849 (7th Cir. 2000) 14

Bantolina v. Aloha Motors, Inc., 419 F. Supp. 1116
(D. Haw. 1976) 14, 21

Barlow v. Quik Pawn Shop, 992 F. Supp. 1299
(M.D. Ala. 1997) 14

Baron v. Best Buy Co., Inc., 75 F. Supp. 2d 1368
(S.D. Ha. 1999), appeal stayed, No. 99-14028-E
(11th Cir. June 2, 2000) 15
Begala v. PNC Bank, 163 F.3d 948 (6th Cir. 1998) 8

Bizier v. Globe Fin. Services, Inc., 654 F.2d 1
(lstCir. 1981) 6,8

Blue Cross v. Superior Court, 78 Cal. Rptr. 2d 779
(Ct. App. 1998), cert. denied, 527 U.S. 1003 (1999) ... 21, 22

Champ v. Siegel Trading Co., 55 F.3d 269 (7th Cir. 1995).... 20

Cole v. Burns International Security Services,
105 F.3d 1465 (D.C. Cir. 1997) 15, 16, 17, 18

iv

Del E. Webb Constr. v. Richardson Hosp. Auth.,
823 F.2d 145 (5th Cir. 1987) 20
Dickler v. Shea rson Lehman Hutton, Inc., 596 A.2d 860
(Pa. Super. 1991) 22

Dortman v. Cash, Inc., CA No. 96-CV-188 (R)
(W.D. Ky. 1996) 13

Dzadovsky v. Lyons Ford Sales, Inc., 593 F.2d 538
(3d Cir. 1979) 8

Edwards v. Your Credit, Inc., 148 F.3d 427
(5th Cir. 1998) 6, 7, 8

Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974) 19, 22

Fairley v. Turan-Foley lmports, Inc., 65 F.3d 475
(5th Cir. 1995) 6
Farrar v. Hobby, 506 U.S. 103 (1992) 10
French v. Wilson, 446 F. Supp. 216 (D.R.I. 1978) 7

Gammaro v. Thorp Consumer Discount Co.,
828 F. Supp. 673 (D. Minn. 1993) 20, 21

Gilmer v. Interstate/Johnson Lane Corp.,
500U.S.20(1991) passim

Goins v. Creditcorp, V-96-175 (Cir. Ct. Bradley Cty.,
Tenn. 1996) 13

Green Tree Fin. Corp. v. Holt, 171 F.R.D. 313
(N.D. Ala. 1997) 27

Hamilton v. York dlb/a/HLT Check Exchange,
987 F. Supp. 953 (E.D. Ky. 1997) 13

Harris v. Green Tree Fin. Corp., 183 F.3d 173
(3d Cir. 1999) 27, 28
v

Harris v. Tower Loan, Inc., 609 F.2d 120
(5th Cir. 1980) 10

Herrara v. First Northern Say. & Loan Ass'n,
805 F.2d 896 (10th Cir. 1986) 8

Izzi v. Mesquite Country Club, 231 Cal. Rptr. 315
(Ct. App. 1986) 22

Jackson v. Check' N Go, Inc., No. 99-C-73 19,
2000 WL 782927 (N.D. 111. June 13, 2000) 19

Jenkins v. Landmark Mortgage Corp., 696 F. Supp. 1089
(W.D. Va. 1988) 7

Johnson v. Tele-Cash. Inc., 82 F. Supp. 2d 264
(D.Del. 1999) 11, 12, 13,21

Keating v. Superior Court, 645 P.2d 1192 (Cal. 1982), rev'd sub nom. on oilier grounds, Southland Corp.
v. Keating, 465 U.S. 1(1984) 21

Kessler v. Associates Fin. Servs. Co., 639 F.2d 498
(9thCir. 1981) 10
In re Knepp, 229 B.R. 821 (Bankr. N.D. Ala. 1999) 22

Lackey v. Green Tree Fin. Corp., 498 S.E.2d 898
(S.C. Ct. App. 1998) 27,28

In re Lannice Fryer. 183 B.R. 322 (Bankr. S.D.
Ga. 1995) 14

McCarthy v. Providential Corp., No. C-94-0627 FMS,
1994 WL 387852 (ND. Cal. July 19, 1994) 20

McGowan v. King, Inc., 569 F.2d 845 (5th Cir. 1978) 6, 9
In re Miller, 215 B.R. 970 (Bankr. S.D. Ky. 1997) 13

vi

Mills v. Home Equity Group, Inc., 871 F. Supp. 1482
(D.D.C. 1994) 6

Minnesota v. First Alliance Mortgage Co., C9-98-1 1416
(Dist. Ct., 2d Judicial Dist. Minn. Mar. 10, 1999) 14

Ifitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc.,473U.S.614(1985) 15, 18,28

Mourning v. Family Publications Serv., Inc.,
411U.S.356(1973) 5

Mumford v. McKenzie Check Advance, Z-220-96
(Cir. Ct. Knox Cty., Tenn. 1996) 13
Ortiz v. Fibreboard Corp., 527 U.S. 817 (1999) 22

Paladino v. Avnet Computer Techs., Inc., 134 F.3d 1054
(llthCir. 1998) 15

Parker v. DeKalb Chrysler Plymouth, 673 F.2d 1178
(11th Cir. 1982) 4, 6
Payne v. Tennessee, 501 U.S. 808, 827 (1991) 26
Phillips Petroleum v. Shutis Co., 472 U.S. 797 (1985) 22
Planned Parenthood v. Casey, 505 U.S. 833, 854 (1992) 26

Pridgen v. Green Tree Fin. Servicing Corp.,
88 F. Supp. 2d 655 (S.D. Miss. 2000) 27

Protective Life Ins. Corp. v. Lincoln Nat'l Life Ins.
Corp., 873 F.2d 281 (11th Cir. 1989) 20

Ramadan v. Chase Manhattan Corp., 156 F.3d 499
(3d Cir. 1998) 6, 8

Randolph v. Green Tree Fin. Corp., 178 F.3d 1149
(llthCir. 1999) 17, 18,21
vii

Ratner v. Chemical Bank N.Y. Trust Co., 54 F.R.D. 412
(S.D.N.Y. 1972) 11

Rodash v. AIB Mortgage Co., 16 F.3d 1142
(11th Cir. 1994) 6, 8

Rogers v. Coburn Fin. Corp. of DeKalb, 54 F.R.D. 417
(N.D.Ga. 1972) 11

Semar v. Plait Valley Fed. Say. & Loan Assn,
791 F.2d 699 (9th Cir. 1986) 6

Shankle v. B-G Maintenance Management, lnc.,
163 F.3d 1230 (10th Cir. 1999) 15, 16, 17

Shearson/American Express, Inc. v. MeMahon,
482U.S.220(1987) 15

Shields v. First Nail Bank of Arizona, 56 F.R.D. 442
(D.Ariz. 1972) 11

Smith v. Chapman, 614 F.2d 968 (5th Cir. 1980) 6, 8

Turner v. E-Z Check Cashing, 35 F. Supp. 2d 1042
(M.D. Tenn. 1999) 13
In re Underwood, 66 B.R. 656 (Bankr. W.D. Va. 1986) 6

Walker v. Wallace Auto Sales, lnc., 155 F.3d 927
(7th Cir. 1998) 14

Weyerhaeuser Co. v. Western Seas Shipping Co.,
743 F.2d 635 (9th Cir. 1984) 20

White v. Cash Emporium, CA No. 98-269
(E.D. Ky. 1998) 13

Wilcox v. Commerce Bank, 55 F.R.D. 134
(D.Kan. 1972) 11

viii ix

Zagorski v. Midwest Billing Se,-vs., Inc.,
128 F.3d 1164 (7th Cir. 1997) 10

Zamarippa v. C/s Car Sales, Inc., 674 F.2d 877
(11th Cir. 1982) 8

STATUTES
15 U.S.C. 45(a) 23
Truth in Lending Act, 15 U.S.C. 1601 etseq 4
15 U.S.C. 1601(a)
15 U.S.C. 1602(aa)
15 U.S.C. 1605 ...
15 U.S.C. 1605(f)
15 U.S.C. 1606
15 U.S.C. 1607
15U.S.C. 1631(a)
15 U.S.C. 1635
15 U.S.C. 1637
15 U.S.C. 1637a
15 U.S.C. 1638
15 U.S.C. 1639
15 U.S.C. 1640
15 U.S.C. 1640(a) 9
15 U.S.C. 1640(a)(1) 9
15 U.S.C. 1640(a)(2)(B) 8
15 U.S.C. 1640(a)(3) 10
15 U.S.C. 1640(a)(4) 9
15 U.S.C. 1640(e) 9
S
9
5
7
S
23
6
7
6
9
5,6
6,9
8
7
LEGISLATIVE HISTORY

Inaccurate and Unfair Billing Practices: Hearings
on 5. 1630 and 5. 914 Before the Subcomm. on
Consumer Credit of the Senate Comm. on Banking,
Housing and Urban Affairs, 93d Cong. 188 (1973)
(statement of Robert Norris, General Counsel,
National Consumer Finance Association) 12

Predatory Lending Practices in the Subprime lndustry: Hearings before the House Comm.
on Banking and Fin. Sen's. (May 24, 2000) 23

S. Rep. No. 94-590 (1976), reprinted in
1976 U.S.C.C.A.N. 431 12

S. Rep. No. 93-278 (1973), quoting 1972 F.R.B.
Ann. Rep. on Truth in Lending 12

H.R. Rep. No. 90-1040 (1968), reprinted in
1968 U.S.C.C.A.N. 1962 4

146 Cong. Rec. 5930 (daily ed. Feb. 29, 2000)
(statement of Sen. Feingold) 26
109 Cong. Rec. 2027 (1963) (statement of Sen. Douglas) S
REGULATIONS AND RELATED AUTHORITY
Regulation Z, 12 C.F.R. 226.18 (1997) 6
Age Discrimination in Employment Act,
29 U.S.C. 626(b), (c), (d) 21
Federal Reserve Board, Official Staff Commentary on Regulation Z 226.2(a)(14)-2,
65 Fed. Reg. 17129 (2000) 13
Federal Reserve Board, Official Staff Commentary on Regulation 7 226.17(c)(1)-18,
61 Fed. Reg.14956 (1996) 14

x xi

RULE

Fed. R. Civ. P. 23 23

MISCELLANEOUS

AAA, Commercial Dispute Resolution Procedures (visited July 20, 2000 commercial! commercial rules.html> 17

Amici Chamber of Commerce Brief 23

Edward Brunet, Questioning the Quality of Alternative

Dispute Resolution, 62 Tul. L. Rev. 1 (1987) 24

Mark E. Budnitz, Arbitration of Disputes Between
Consumers and Financial Institutions: A Serious
Threat to Consumer Protection, Ohio St. 3. on Disp.
Resol. 267 (1995) 24
Federal Reserve Board, 1972 Ann. Rep. on Truth
inLending 11,12

Federal Reserve Board, 1973 Ann. Rep. on Truth
in Lending 11

Jean Ann Fox, Consumer Fed'n of Am., Safe Harbor for Usury: Recent Developments in Payday
Lending (1999), www.consumerfed.or~
Justice Lewis F. Powell, Stare Decisis and Judicial
Restraint, 47 Wash. & Lee L. Rev. 281 (1990) 26

Ralph I. Rohner and Fred H. Miller, Truth in Lending
(Robert A. Cook, et al. eds., 2d ed. 2000) 11, 20
David S. Schwartz, Enforcing Small Print to Protect
Big Business: Employee and Consumer Rights
Claims in an Age of Compelled Arbitration, 1997
Wis. L. Rev. 33 (1997)
25, 26
Stewart E. Sterk, Enforceability ofAgreements to Arbitrate: An Examination of the Public Policy Defense,
2Cardozo L. Rev. 481 (1981) 24

John Vail, Defeating Mandatory Arbitration Clauses,
36 Trial 70 (Jan. 2000) 17
13
Jean Ann Fox, Consumer Fed'n of Am., The Growth of Legal Loan Sharking: A Report on the Payday
Loan Industry (1998) 13

Alan Kaplinsky & Mark Levin, Excuse me, but who's the predator? Banks can use arbitration clauses as a defense, 7 Bus. L. Today 24 (May/June 1998) 25, 27

John V. OHara, The New Jersey Alternative Procedure For Dispute Resolution Act: Vanguard of a 'Better
Way'?, 136 U. Pa. L. Rev. 1723 (1988) 26

No. 99-1235


INTHE

Supreme Court of the United States

GREEN TREE FINANCIAL CORP. -- ALABAMA and GREEN TREE FINANCIAL CORPORATION,
Petitioners,

v.

LARKEYFA RANDOLPH,

Respondent.

ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT


BRIEF AMICI CURIAE OF AARP AND THE
NATIONAL CONSUMER LAW CENTER
IN SUPPORT OF RESPONDENT


INTEREST OF AMICI CURIAE~

AARP is dedicated to addressing the needs and interests of people aged 50 and older. As the largest membership organization serving older Americans, AARP is alarmed by the rampant fraud and deceptive practices perpetrated in a broad range of marketplace transactions, because these acts



~' The parties' consents have been filed with the Clerk of the Court. In compliance with Rule 37.6 of this Court, amici curiae AARP and the National Consumer Law Center state that no counsel for any party authored this brief in whole or in part and that no party or entity other than these amici curiae, their members or counsel made a monetary contribution to the preparation or submission of this brief.
2 3

disproportionately affect older consumers. AARP supports laws and public policies designed to protect their rights and to preserve the legal means to enforce them. AARP played an active role in the passage of recent amendments to the Truth in Lending Act ("TWA"), and participated in negotiations with industry and government representatives to improve disclosures and enhance substantive protections against abusive lending practices. AARP advocates for improved access to the civil justice system and supports the availability of the full range of enforcement tools, including class actions.

In recent years, AARP Foundation attorneys have represented countless older homeowners who have been victimized by abusive mortgage refinancings. These cases challenged: lender compliance with TWA disclosure obligations, including hiding a sixteen-point broker fee; charging a premium for credit life insurance of no value to the consumer; failing to provide the homeowner with a Notice of Right to Cancel; and failing to provide the three-day advance warning disclosure to a borrower with a high cost loan. Each of these loans was destined to go into default because the borrowers' mortgage payments ranged from 52 to 100 percent of their monthly incomes. The abusive lending practices described above are not diminishing but are becoming more widespread.

The effect of an arbitration agreement such as Green Tree's on these cases would have been devastating to the borrowers' ability to vindicate their TWA rights. Regardless of the fact that their arbitration costs ultimately might have been reimbursed, the initial outlay of fees would have barred these claimants from seeking redress.

The National Consumer Law Center ("NCLC") is a nonprofit corporation established in 1969. One of its primary objectives is the provision of assistance to legal services attorneys, governmental agencies, and private attorneys in advancing the interests of their low-income and elderly clients in the area of consumer law. NCLC staff write and publish over thirteen legal treatises on various federal and state statutes that affect consumer law. In particular, Truth ln Lending (4th
ed. 1999) and its earlier editions have provided insight and analysis of TWA for over two decades. This text was most recently relied upon by Chief Judge Posner in Adams v. Plaza Fin. Co., 168 F.3d 932, 935 (7th Cir. 1999). For over twenty years, NCLC staff have provided oral and written testimony to Congress and the Federal Reserve Board on the propriety of statutory and regulatory changes to TWA and Regulation Z. NCLC staff also have been members of the Federal Reserve Board's Consumer Advisory Council.

Amici are filing this brief because mandatory arbitration agreements, such as Green Tree's, conflict with the public purpose of TWA and its private enforcement mechanism.

SUMMARY OF ARGUMENT

An arbitration clause that is silent regarding payment of arbitration fees and costs undermines the Congressional purpose of the Truth in Lending Act ("TWA"), if it imposes fee barriers that prevent claimants from vindicating their statutory rights. While companies that impose binding arbitration frequently tout it as a low-cost alternative to litigation, arbitration can be prohibitively expensive. When arbitration prevents a claimant from vindicating statutory rights conferred by a public interest statute like TWA, it impermissibly conflicts with TWA and its Congressional purpose.

Congress enacted TWA to provide consumers with information about the essential terms of their credit transactions and to deter deception and fraud in the credit marketplace. It has been a cornerstone of federal consumer protection law since its passage in 1968. TWA relies upon consumers acting as private attorneys general to police creditor compliance by providing individual and class remedies. The enforcement of TWA through damages provisions is made feasible by the Act's fee-shifting provision, which mandates the award of costs and reasonable attorneys' fees to a prevailing consumer.

The class action remedy is an essential component to enforcing TWA's protections and is a powerful deterrent to wrongful conduct. Indeed, class actions remain the only


(1973).
4 S

realistic way for consumers with small monetary claims to vindicate their rights under, and to promote compliance with, TWA. Without class relief and mandatory fee-shifting, TWA would be reduced to nothing more than a mere nuisance to creditors, thus diminishing the Act's deterrent and remedial functions.

The Court has held that parties in arbitration are entitled to all substantive rights guaranteed by a statute such as TWA. The Eleventh Circuit's conclusion that an arbitration clause that imposes steep arbitrator or filing fees violates TWA's fee-shifting mandate is consistent with the Court's holdings and should be upheld.

ARGUMENT

I. CONGRESS ENACTED THE TRUTH IN LENDING ACT TO REGULATE CREDIT INDUSTRY PRACTICES AND PROTECT CONSUMERS.

The Truth in Lending Act ~' ("TWA" or "Act") has been a cornerstone of federal consumer protection law since its passage in 1968. TWA was enacted in response to the growing complexity in consumer credit in which many consumers were unable to discover the essential terms of their credit transactions, and in recognition that many unwitting consumers were routinely victimized by misrepresentations and fraudulent practices in the credit marketplaceY

Prior to 1968, consumers had no easy way to determine how much credit would cost or how to compare various loan products. Creditors did not calculate or advertise interest in a uniform way, nor was there a single system for defining what additional charges would be included in the interest rate. These
differences in computation significantly affected the cost to the consumer. For example, a three-year $6,000 car loan at 6% interest cost the consumer: $1,080 in interest if computed as an add-on rate; $1,317 in interest computed at a discount rate; and $570 in interest at a simple or actuarial rate. Consumers confronted with seemingly similar interest charges simply had no way to decipher which quoted rate of interest was the most expensive and could not compare terms and shop for creditY

Congress responded to this marketplace confusion, and sometimes outright deception, by enacting TWA. The statute represented an effort by Congress to strengthen competition among financial institutions and enhance the economic stabilization of the marketplace by the informed use of creditY This overarching public purpose was furthered by mandating the accurate, uniform, and meaningful disclosure of the costs of consumer creditY

The Act took a major step toward eliminating the interest rate deception noted above by prescribing a uniform calculation of interest as an annualized rate, by defining what kinds of credit-related charges should be included when calculating the annual percentage rate ("APR"),2' and by requiring that the total cost of these charges be disclosed as a dollar amount in the "finance charge."- In Ms. Randolph's case, the creditor included a vendor's single interest insurance premium in the amount financed which should have been, but was not, included in the finance charge. This had the effect of artificially lowering the APR, making the loan look more



~' See 109 Cong. Rec. 2027 (1963) (statement of Sen. Douglas).

~-' 15 U.S.C. 1601(a).

~' Id.; Mourning v. Family Publications Serv., inc., 411 U.S. 356, 377 ~' 15 U.S.C. 1601 etseq.

~' See HR. Rep. No. 90-1040, at 2 (1968), reprinted in 1968
U.S.C.C.A.N. 1962; Parker v. DeKalb Chrysler Plymouth, 673 F.2d 1178,
1181-82(llthCir. 1982).
2' 15 U.S.C. 1606.

!' 15 U.S.C. 1605, 1638.

6 7

attractive to Ms. Randolph than it actually was.

TWA confers statutorily-created private rights affecting the public interest,2' creates a system of disclosure that improves the bargaining posture of all borrowers, and requires strict technical comp1iance.~~' Green Tree violated TILA' s mandatory disclosure scheme by failing to accurately provide Ms. Randolph with the essential terms of her credit transaction."t TWA's enforcement mechanism was designed precisely to empower consumers like Ms. Randolph to challenge creditors' wrongful conduct. Because of the importance of its remedial Durpose, courts throughout the country have liberally construed TWA in favor of borrowers.'2'

A. TILA's Text, Purpose, and Legislative History Reflect the Pivotal Role of Private Attorney General Enforcement.

Congress intended that TWA's protections be enforced by consumers acting as private attorneys general.i~ Simply



2' See Parker, 673 F.2d at 1181; Mills v. Home Equity Group, Inc., 871 F. Supp. 1482, 1486 (D.D.C. 1994).
legislating required disclosures could not, by itself, compensate for the vast disparity in bargaining positions between consumers and lenders. The Act protects all consumers b,y deterring improper and deceptive behavior by all creditors..L~

This private attorney general scheme includes the right to obtain actual damages, individual statutory damages, enhanced statutory damages for high-cost mortgages, class action damages, rescission, and an award of costs and attorneys' fees).2' TWA represents a carefully constructed balance between the borrower's right to receive accurate and timely information about the cost of credit and the creditor's obligation to provide those disclosures without significant liability for small disclosure errors.1~' Petitioners and their amici advocate upsetting this statutory balance by allowing creditors to impose an arbitration scheme that thwarts consumers' ability to vindicate their rights as prescribed by
TWA.

1. TILA Damages Effectuate Private Attorney General Enforcement.

From the outset, Congress primarily focused on the enforcement of the public interest in accurate disclosure through private attorney general lawsuits seeking statutory
J.~' See Parker, 673 F.2d at 1181; Smith v. Chapman, 614 F.2d 968, 971 (5th Cir. 1980).

~' See 15 U.S.C. 1631(a). 1637-39; Regulation Z, 12 C.F.R. 226.18
(1997). See also in re Underwood, 66 B.R. 656, 660 (Bankr. W.D. Va.
1986).

1 See Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 502 (3d Cir.
1998); Fairley v. Turan-Folev Imports, Inc., 65 F.3d 475, 479 (5th Cir.
1995); Rodash v. AIB Mortgage Co., 16 F.3d 1142, 1144 (11th Cir. 1994);
Semar v. Platte Valley Fed. Say. & Loan Ass 'n, 791 F.2d 699,704(9th Cir.
1986); Bizier v. Globe Fin. Sers's., Inc., 654 F.2d 1, 3 (1st Cir. 1981).

'-~' See Edwards v. Your Credit, Inc., 148 F.3d 427 (5th Cir. 1998); McGowan v. King, Inc., 569 F.2d 845, 848 (5th Cir. 1978); Aquino v.
(continued...)
"' (...continued)
Public Fin. Consumer Discount Co., 606 F. Supp. 504, 508 (E.D. Pa.
1985); French v. Wilson, 446 F. Supp. 216 (D.R.I. 1978).

'~' See Edwards, 148 F.3d at 432; Jenkins v. Landmark Mortgage Corp.,

696 F. Supp. 1089, 1092 (W.D. Va. 1988); French, 446 F. Supp. at 220. '~' See 15 U.S.C. 1640(a), 1635.

16/ See 15 U.S.C. 1605(f).

8 9

damages.E' Over the years, courts have uniformly held that TWA is primarily enforced through these private attorney general lawsuits which are expressly fostered by the statutory damages, mandatory attorneys' fees and cost shifting
18/
provisions. Several aspects of these provisions are significant. First,
damages are mandatory even for technical violations. Second, to obtain statutory damages, the consumer need not show that he or she was deceived by the violation or suffered any actual damages;12' this evidences the Congressional goal of furthering the public purpose of the Act through private enforcement. Finally, the consumer need not exhaust any administrative remedies or provide advance notice to a creditor or agency before instituting a lawsuit.

In the thirty two years since the Act's passage, Congress has consistently reaffirmed its commitment that private attorney general enforcement is critical to creditor compliance with the Act. In 1974, Congress specifically endorsed class actions by adopting class statutory damages~~' and added an actual
damages subsection. In 1988, Congress imposed statutory damages for failing to provide consumers important information about home equity lines of credit).~'

In 1994, Congress sought to curtail the rampant growth of predatory mortgage lending targeted at vulnerable consumers by offering special protections on "high cost" loans.~' Congress deemed the new "high cost" disclosures and protections so important that it expanded the private attorney general scheme by creating mandatory enhanced statutory damages.~' Finally, in 1995 Congress rejected industry efforts to undermine class actions, and doubled individual statutory damages in mortgage transactions.25'

2. TILA's Fee-shifting Provisions Effectuate Private Attorney General Enforcement.

The mandatory award of costs and attorneys' fees to a prevailing borrower is one of the lynchpins of TWA's statutory enforcement. Fee-shifting gives an aggrieved borrower not only the right, but the ability, to act as a private attorney general .~'





~' Actual damages were not included in the original damages provision. Consumer Credit Protection Act., Pub. L. No. 90-32 1, 130, 82 Stat. 146 (1968) (cod~fied as amended in 15 U.S.C. 1640).

i~' See Be gala v. PNC Bank, 163 F.3d 948,950(6th Cir. 1998); Ramadan, 156 F.3d at 502; Edwards, 148 F.3d at 432; Rodash, 16 F.3d at 1144; Herrara v. First Northern Say. & Loan Ass 'n, 805 F.2d 896,902(10th Cir. 1986); Bizier, 654 F.2d at 2.

~' See Zamarippa v. Cy's Car Sales, Inc., 674 F.2d 877, 879 (11th Cir. 1982); Smith, 614 F.2d at 968; Dzadovsky v. Lyons Ford Sales, Inc., 593 F.2d 538, 539 (3d Cir. 1979).

~' Act of Oct. 28, 1974, Pub. L. No. 93-495, 88 Stat. 1500 (codtfled as amended at 15 U.S.C. 1640(a)(2)(B)).
21/ Id. at 407(a) (codfled as amended at 15 U.S.C. 1640(a)(1)).

22/ Home Equity Loan Consumer Protection Act of 1988, Pub. L. No. 100-

709, 102 Stat. 4725 (cod(fied as amended at 15 U.S.C. 1637a).

23/ 15 U.S.C. 1602(aa), 1639.

24/ Enhanced damages under The Home Ownership Equity Protection Act ("HOEPA") are in addition to other statutory and actual damages. 15 U.S.C. 1640(a), 1640(a)(4).

25/ Truth in Lending Act Amendments of 1995, Pub. L. No. 104-29, 109 Stat. 271 (codified as amended at 15 U.S.C. 1640(a)).

26/ See McGowan, 569 F.2d at 848.

10 11

The consumer can afford to contemplate acting as a private attorney general because, if successful, costs and reasonable attorneys' fees must be awarded regardless of the size of the statutory damages recovery).2' In contrast, unsuccessful plaintiffs are not penalized with an assessment of attorneys' fees and costs).~' As Justice O'Connor observed, private attorney general actions "ensure the vindication of important rights, even when large sums of money are not at stake, by making attorney's fees available." Farrar v. Hobby, 506 U.S. 103, 122 (1992) (concurring). "Success must be measured not only in the amount of money damages but also in terms of the significance of the legal issues . . . and the public purpose served by the litigation." Zagorski v. Midwest Billing Sen's., Inc., 128 F.3d at 1165. Under TWA's fee-shifting statutory scheme, the enforcement costs that might otherwise be borne by a government bureaucracy are instead imposed on the creditor which has acted improperly.29'

3. TILA's Class Action Provision Effectuates Private Attorney General Enforcement.

Congress consistently has recognized that class actions are essential to TWA's self-enforcement scheme. The debate over the importance of class actions emerged almost immediately after passage of this landmark consumer credit legislation. In the early years of TWA litigation, most courts were unwilling to certify a class because of the massive potential liability that would have resulted from aggregating the mandatory minimum







~2' See, e.g., Zagorski v. Midwest Billing Sen's., Inc., 128 F.3d 1164 (7th Cir. 1997).

~' See 15 U.S.C. 1640(a)(3).

~' See, e.g., Kessler v. Associates Fin. Sen's. Co., 639 F.2d 498 (9th Cir. 1981); Harris v. Tower Loan, Inc., 609 F.2d 120(5th Cir. 1980).
$100 statutory damages for all class members ).2' The inflexibility of minimum statutory damages, coupled with the Act's silence regarding class actions, created uncertainty as to Congress's intent regarding the use of class actions. As a result, courts imposed numerous procedural restrictions to prevent class liability for TWA violations2-'~'

In its Annual Reports to Congress, the Federal Reserve Board expressed concern about the trend to disapprove TWA class actions)~' The Board stated that "if this trend were to continue, the deterrent of potential class action liability which helps to ensure creditor compliance with the Act would be effectively lost."~' The Board focused on the "prophylactic effect of the threat of class action exposure [which] elevates a possible Truth in Lending law suit from the ineffective 'nuisances category to the type of suit which has enough sting in it to insure that management will strive with diligence to achieve compliance."2~' Congress agreed that "'potential class action liability is an important encouragement to the voluntary compliance which is so necessary to insure nationwide







~ See Ralph I. Rohner and Fred H. Miller, Truth in Lending 865-6 (Robert A. Cook, et al. eds., 2d ed. 2000).

~" Id. at 866. See, e.g., Shields v. First Nat 'I Bank, 56 F.R.D. 442,446 (D. Ariz. 1972); Wilcox v. Commerce Bank, 55 F.R.D. 134, 138 (D. Kan. 1972); Rogers v. Coburn Fin. Corp., 54 F.R.D. 417, 419 (N.D. Ga. 1972); Ratnerv. Chemical Bank N.Y Trust Co., 54 F.R.D. 412 (S.D.N.Y. 1972); see also Johnson v. Tele-Cash, 82 F. Supp. 2d 264, 269 (D. Del. 1999).

32/ See 1972 F.R.B. Ann. Rep. on Truth in Lending 13-14; 1973 F.R.B. Ann. Rep. on Truth in Lending 9.

~" 1973 F.R.B. Ann. Rep. on Truth in Lending 9.

'~' 1972 F.R.B. Ann. Rep. on Truth in Lending 13-14.

12 13

adherence to uniform disclosure."'~' At the same time, Congress expressly rejected the finance industry's proposal that TWA class actions be limited to those seeking actual damages or injunctive relief).~'

Congress created a class action damages provision that carefully balanced TWA's purpose "to provide creditors with a meaningful incentive to comply with the law without relying upon an extensive new bureaucracy" with its concern that creditors not be subjected to enormous penalties for technical violations).2' This provision specifically authorized class actions but limited the maximum damages awards. Far from indicating Congressional disapproval of the class action remedy, the limitation on statutory damages was the only mechanism that Congress deemed viable to express its manifest intent to promote class actions).~' Indeed, through numerous amendments to TWA over the years, Congress has never deviated from this position.

Class actions have and continue to be a critical element in the enforcement of TWA. The right to aggregate claims for statutory damages has proven a potent ally to government efforts to prevent lenders from overstepping the bounds of
TWA and straying into deceptive practices. In recent years, the payday loan industry has aggressively expanded from small local businesses to major national financial organizations).2' These companies, whose loans are characterized by exorbitant rates, ranging from 261% to 782%,~' adamantly had refused to provide TWA disclosures that would have revealed to borrowers their astronomical rates of interest.~' Characterizing these transactions as "deferred presentments" or "cash leasing," these banks and finance companies sought to disguise the true nature of payday loans, asserting that TWA disclosures were unnecessary. Class action lawsuits propelled this issue to the foregroun&Y and ultimately resulted in the Federal Reserve Board's issuing new Commentary~2' that stated the obvious payday loans are consumer credit transactions and consumers







p.2' See Jean Ann Fox, Consumer Fed' n of Am., The Growth of Legal Loan
Sharking: A Report on the Payday Loan Industry 2-3 (1998); Jean Ann
Fox, Consumer Fed'n of Am., Safe Harbor for Usury: Recent
Developments in Payday Lending 4 (1999), www.consumerfed.or~.

~-~' See S. Rep. No. 93-278, at 15 (1973), quoting 1972 F.R.B. Ann. Rep. on Truth in Lending 13.

~' Inaccurate and Unfair Billing Practices: Hearings on 5. 1630 and S.
914 Before the Subcomm. on Consumer Credit of the Senate Comm. on
Banking, Housing and Urban Affairs, 93d Cong. 188 (1973) (statement of
Robert Norris, General Counsel, National Consumer Finance Association).

22.' 5. Rep. No. 93-278 to accompany 5. 2101, Truth in Lending Act Amendments 14-15 (June 28, 1973).

~' See S. Rep. No. 94-590 at 7-8 (1976), reprinted in 1976 U.S.C.C.A.N.
431. (When Congress amended the class action provision to increase
available damages, it "wishe [dl to avoid any implication that the ceiling on
class action recovery is meant to discourage use of the class action device.")
See also Johnson, 82 F. Supp. 2d at 269.
Jean Ann Fox, The Growth of Legal Loan Sharking, supra, at 7; see also Hamilton v. York d/b/a/HLT Check Exchange, 987 F. Supp. 953 (E.D. Ky. 1997); In reMiller, 215 B.R. 970 (Bankr. S.D. Ky. 1997).

~" See, e.g., Turner v. E-Z Check Cashing, 35 F. Supp. 2d 1042 (M.D. Tenn. 1999); Hamilton, 987 F. Supp. 953.

~' See, e.g., White v. Cash Emporium, CA No. 98-269 (E.D. Ky. 1998); Dortmanv. Cash, Inc.,CA No. 96-CV-188(R) (W.D. Ky. 1996);Mumford v. McKenzie Check Advance, Z-220-96 (Cir. Ct. Knox Cty., Tenn. 1996); Goins v. Creditcorp, V-96- 175 (Cir. Ct. Bradley Cty., Tenn. 1996); see also Johnson, 82 F. Supp. 2d at 264.

~ Official Staff Commentary on Regulation 7 226.2(a)(14)-2, 65 Fed.
Reg. 17129, 17130(2000). The Board clearly stated that this commentary was not a change in the law.

14 15

are entitled to TWA disclosures that inform them of the true cost of that very expensive form of creditA~'

The public enforcement purpose of the class action remedy has been apparent from the outset. The class representative under TWA, who shepherds a case through complex litigation while receiving a smaller damages amount than in an individual case,~' cannot be said to be acting other than in the public's interest. Consistent with this notion, many TWA class action lawsuits effectively have raised and challenged abusive industry practices such as charging consumers for a deceptive insurance product,~' manipulating TWA disclosures to hide credit costs instead of disclosing them,~' and burying grossly inflated charges in the price of the goods sold.~' In the absence of class action lawsuits, many of these abusive practices would continue unabated.





~' Similarly in the arena of automobile "title pawn" loans, consumer lawsuits highlighted that industry's unwillingness to comply with TILA's disclosure scheme. See, e.g., Barlow v. Quik Pawn Shop, 992 F. Supp. 1299 (M.D. Ala. 1997); In re Lannice Fryer, 183 B.R. 322 (Bankr. S.D. Ga. 1995). The Federal Reserve Board amended its Commentary to emphasize that pawns loans are consumer credit transactions under TILA. Official Staff Commentary on Regulation 7 226.1 7(c)(J)-18, 61 Fed. Reg.14956 (1996).

~' See Bantolina v. Aloha Motors, Inc., 419 F. Supp. 1116, 1121 (D. Haw. 1976).

~ See Adams v. Plaza Fin. Co., 168 F.3d 932 (7th Cir. 1999); Edwards, 148 F.3d 427.
II. ARBITRATION AGREEMENTS SUCH AS GREEN
TREE'S THAT PREVENT CONSUMERS FROM
EFFECTIVELY VINDICATING THEIR
STATUTORY RIGHTS UNDERMINE THE TRUTH
IN LENDING ACT'S REMEDIAL PURPOSE.

The Court has recognized that "[b]y agreeing to arbitrate a statutory claim, a party does not forgo the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather than ajudicial forum." Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614,628(1985); see also Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). Congressional intent that a statute not be subject to a waiver of the right to a judicial forum can be gleaned from a statute's text or its legislative history, or from "an inherent conflict between arbitration and the statute's underlying purposes." Shearson/Ameri can Express, Inc. v. McMahon , 482 U.S. 220, 227 (1987).

Following this Court's direction, several federal courts have found arbitration provisions unenforceable when they undermined important statutory rights.~2'

A. Arbitration Contracts That Require Claimants to Pay Fees Undermine TILA Enforcement.

An arbitration clause, like the one in the instant case, that is silent regarding payment of arbitration fees and costs undermines the Congressional purpose of TWA if it imposes fee barriers that prevent claimants from vindicating their statutory rights. While companies that impose binding arbitration frequently cite it as a low-cost alternative to litigation, many courts have recognized the real costs of

~' See Minnesota v. First Alliance Mortgage Co., C9-98-1 1416 (Dist. Ct.,
2d Judicial Dist. Minn. Mar. 10, 1999) (order for final judgment);
www.ae.state.mn.us.

~' See Balderos v. City Chevrolet, 214 F.3d 849 (7th Cir. 2000); Walker
v. WallaceAuto Sales, Inc., 155 F.3d 927 (7th Cir. 1998).
See, e.g., Shankle v. B-G Maintenance Management, Inc., 163 F.3d
1230, 1234 (10th Cir. 1999); Paladino v. Avnet Computer Techs., Inc., 134
F.3d 1054, 1062 (11th Cir. 1998); Baron v. Best Buy Co., Inc., 75 F. Supp.
2d 1368, 1370-71 (S.D. Ha. 1999), appeal stayed, No. 99-14028-E (11th
Cir. June 2, 2000). Cf Cole v. Burns Int'l Sec. Sen's., 105 F.3d 1465,
1484-85 (D.C. Cir. 1997).

16 17

arbitration and how the imposition of those costs and fees can prevent claimants from vindicating rights under statutes protecting public interests.

Cole v. Burns International Security Services, 105 F.3d 1465, 1480 (D.C. Cir. 1997), involved an arbitration agreement like Green Tree's which was silent as to costs. The parties in that Title VII civil rights case stipulated that arbitrators' fees are commonly $500 to $1,000 per day. The court found that an employee facing expensive filing and administrative fees, which are substantially in excess of the fees paid in federal court, is unlikely to pursue his or her statutory claims in an arbitral forum. id. at 1484. In fact, the Court was:

unaware of any situation in American jurisprudence in which a beneficiary of a federal statute has been required to pay for the services of the judge assigned to hear her or his case. Under Gilmer, arbitration is supposed to be a reasonable substitute for a judicial forum. Therefore, it would undermine Congress's intent to prevent employees who are seeking to vindicate statutory rights from gaining access to a judicial forum and then require them to pay for the services of an arbitrator when they would never be required to pay for a judge in court.

Id. (footnotes & citations omitted). To effectuate the liberal policy favoring arbitration agreements without impairing the claimant's statutory rights, the D.C. Circuit Court interpreted the arbitration agreement to require the employer to bear the full expense of the arbitral fees and costs. Id. at 1485.

The Tenth Circuit confronted a similar, but more intractable problem in Shankle v. B-G Maintenance Management, Inc., 163 F.3d 1230 (10th Cir. 1999), where it found that an arbitration agreement requiring an employee to pay half of an arbitrator's fees, which included a $6,000 deposit, $250 per hour of arbitrator time, $125 per hour for arbitrator travel time, and $45 per hour for paralegal time, placed him:
between the proverbial rock and a hard place it prohibited use of the judicial forum, where a litigant is not required to pay for a judge's services, and the prohibitive cost substantially limited use of the arbitral forum. . . . B-G Maintenance required Mr. Shankle to agree to mandatory arbitration as a term of continued employment, yet failed to provide an accessible forum in which he could resolve his statutory rights. Such a result clearly undermines the remedial and deterrent functions of the federal anti-discrimination laws.

Id. at 1235. Because the fee-splitting provisions of the arbitration agreement explicitly conflicted with the statutory fee-shifting provisions, the Shankle court, unlike the court in Cole, was unable to craft a saving interpretation.

High up-front costs create a formidable barrier to a consumer's ability to vindicate statutory rights. These costs present a particular problem for the many consumers whose relatively small claims are substantially less than the cost of proceeding to arbitration. For this reason, arbitration clauses that are silent as to fees and costs should be unenforceable unless such clauses are interpreted to "ensure that [a consumer's] ability to vindicate her statutory rights [under TWA] will not be undone by steep filing fees, steep arbitrators' fees, or other high costs of arbitration." Randolph v. Green Tree Fin. Corp., 178 F.3d 1149, 1158 (11th Cir. 1999). Inthe



~' For example, the American Arbitration Association (AAA) requires that claimants who request an in-person hearing for a small claim pay all fees and costs. In disputes valued at between $10,000 and $100,000, a consumer must pay a filing fee of $500 to $1,250, a daily hearing fee of $150, a daily room rental fee of $150, and a portion of the arbitrator's fee of $100 to $350 per hour. AAA, Commercial Dispute Resolution Procedures (visited July 20, 2000) . See also John Vail, Defeating Mandatory Arbitration Clauses, 36 Trial 70, 71 (Jan. 2000); Cole, 105 F.3d at 1484 n. 13.

18 19
absence of such a ruling from this Court, the Eleventh Circuit was not persuaded by Green Tree's statement at oral argument that the arbitration award might ultimately apportion the fees as directed by TWA. There is "no guarantee that a consumer successfully arbitrating under this clause will not be saddled with a prohibitive costs order, despite the small sum that is I ~kely to be the object of the dispute in arbitrations of this kind." Id. Moreover, even an allocation of fees in accordance with TWA at the end of arbitration does not remove the entry barriers which ensue when a claimant must advance costs as a condition precedent to initiating the case.

Allowing Petitioners to impose such costs on consumers renders null the Court's statement in Gilmer that arbitration must not effect a loss of the "'substantive rights afforded by the statute... ."' 500 U.S. at 26 (quoting Mitsubishi, 473 U.S. at 614). In Gilmer, the standard practice was for employers to pay all the arbitration costs and fees under the NYSE and NASD rules.5-'.' The Court, therefore, was not confronted with the chilling effect upon a complainant being forced into an unreasonably expensive arbitration proceeding.

Petitioners and their amici simply dodge this issue. They fail to acknowledge the hardship indeed the impossibility for the average consumer to advance the fees that often far exceed the amount of the claim. Instead, they fast-forward the discussion down the time line and postulate a rosy scenario for the successful borrower in arbitration. They incorrectly argue that the right to costs and attorneys' fees is assured by the language of the arbitration agreement that "the arbitrator shall have all powers provided by the law and the Contract." Randolph, 178 F.3d at 1151. On the contrary, this language suggests that a great deal of discretion is accorded the arbitrator who need not follow the law. This slight of hand ignores the impact of up-front costs on borrowers. Arbitration that falls to clearly adopt the mandatory fee-shifting guarantees of TWA seriously undermines the statute's primary enforcement mechanism.



~2' See Cole, 105 F.3d at 1483.
B. Arbitration Contracts That Preclude Class Actions Undermine TILA Enforcement.

The Court has endorsed the important role of class actions:

The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor.

Amchem Products, Inc. v. Windsor, 521 U.S. 591, 617 (1997)


TWA claims often are brought for small dollar amounts, to remedy deceptive practices aimed at the most vulnerable members of our society. Class actions were designed for this very situation, cases brought by "impecunious plaintiffs who allege similar mistreatment by a comparatively powerful defendant, one that . . . otherwise might get away with piecemeal highway robbery by committing small violations that were . . . beyond [the] ability or resources [of individual plaintiffs] to remedy." Jackson v. Check' N Go, Inc., No. 99-C-7319, 2000 WL 782927, at *3 (N.D. flI. June 13, 2000).

The class action remedy is not merely a procedural device; it is an important substantive right under TWA.

Whether or not a class action is available as a remedy is a substantive issue relating to congressional intent.... It is hard to believe that



~ Accord Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 161 (1974) ("A critical fact.., is that petitioner's individual stake.. . is only $70. No competent attorney would undertake this complex antitrust action to recover so inconsequential an amount. Economic reality dictates that petitioner's suit proceed as a class action or not at all.").

20 21

the question of whether TW damages should be collected en masse is no more than a procedural issue. ... Any uncertainty on this score should be resolved by the specific class action recovery provisions in section 130(a)(2) of the TW Act.

Ralph I. Rohner and Fred H. Miller, Truth in Lending 871 (Robert A. Cook, et al. eds., 2d ed. 2000). As a substantive right under TWA, class actions must be available to consumers either in the judicial or arbitral forum.53'

The TWA class action right is threatened by the interpretation of federal courts that have held that class arbitration may proceed only if specifically authorized by the agreement or its applicable rulesA' Even when the agreement is silent on the issue, like the Green Tree agreement, federal courts have enforced the agreement but disallowed class arbitration notwithstanding that enforcement may result in nullifying important statutory rights.~' Failing to heed the



~' Gilmer is distinguishable because, unlike TWA, the ADEA imposes barriers to class actions. The ADEA allows only opt-in class actions preceded by 60-day notice to the EEOC. The EEOC then "shall promptly seek... informal methods of conciliation, conference, and persuasion" and EEOC commencement of an action terminates the private class action. 29 U.S.C. 626(b), (c). (d).

~' See Baesler v. Continental Grain Co., 900 F.2d 1193,1195 (8th Cir.
1990); Protective Life Ins. Corp. v. Lincoln Nat'l Life Ins. Corp., 873 F.2d
281,282(11th Cir. 1989) (per curiam); Del E. Webb Constr. v. Richardson
Hosp. Auth., 823 F.2d 145, 150 (5th Cir. 1987); Weyerhaeuser Co. v.
Western Seas Shipping Co., 743 F.2d 635, 637 (9th Cir. 1984).

~' See Champ v. Siegel Trading Co., 55 F.3d 269, 275 (7th Cir. 1995); American Centennial Ins. Co. v. National Cas. Co., 951 F.2d 107, 108(6th Cir. 1991).

~' See, e.g., McCarthy v. Providential Corp., No. C-94-0627 EMS, 1994 WL 387852 (N.D. Cal. July 19, 1994); Gammaro v. Thorp Consumer
(continued...)
Court's warning that parties to an arbitration agreement should not be forced to forgo substantive statutory rights and that "all statutory claims may not be appropriate for arbitration," Gilmer, 500 U.S. at 26, many courts have misconstrued the liberal federal policy favoring enforcement of arbitration agreements

Only a few federal courts, including the Eleventh Circuit in Randolph, have taken care to balance the federal policy favoring arbitration while upholding statutory integrity. In Johnson v. Tele-Cash, Inc., 82 F. Supp. 2d 264 (D. Del. 1999), a putative class action alleging the failure to disclose excessively high interest rates, the court carefully reviewed TWA's legislative history and damages provisions when considering the enforceability of an arbitration agreement that prohibited class action relief. While mindful of the liberal policy favoring enforcement of arbitration agreements, the court appropriately found that the agreement "would contravene the express congressional intent to 'encourage the use of class actions as an important tool for enforcing Truth in Lending."' Id. at 267, quoting Bantolina v. Aloha Motors, Inc., 419 F. Supp. 1116, 1120 (D. Haw. 1976). Without class relief, TWA would be stripped of its "sting" and reduced to nothing more than a mere nuisance to creditors, thus diminishing the Act's deterrent and remedial functions. See Johnson, 82 F.2d at 270.

The reluctance of many federal courts to recognize the key role of class actions in vindicating important statutory rights that affect the public interest will have a devastating effect upon consumers.~2' If consumers are forced into the arbitral forum




Discount Co., 828 F. Supp. 673, 674 (D. Minn. 1993).

~ Unlike some federal courts, many state courts have found that class action arbitration is allowed under the FAA. See, e.g., Keating v. Superior Court, 645 P.2d 1192, 1209 (Cal. 1982), rev'd sub nom. on other grounds, Southland Corp. v. Keating, 465 U.S. 1 (1984); Blue Cross v. Superior Court, 78 Cal. Rptr. 2d 779, 790 (Ct. App. 1998), cert. denied, 527 U.S.
(continued...)

22 23

without the right to seek class-wide relief, creditors will be able to avoid TWA compliance with impunity.~1'

1. Arbitration Is Not Suitable for Class-wide Adjudication.

Class-wide adjudication is not suitable for arbitration as long as the due process rights of absent class members are not protected. Unless arbitrators guarantee these rights and follow Fed. R. Civ. P. 23, claims under TWA and other statutes imbued with a public purpose cannot, consistent with the Constitution and Congressional intent, be forced into arbitration.

The representative nature of class actions creates particular due process concerns. Special steps must be taken to protect the interests of individuals who will be bound by the outcome of a suit to which they were not a party. These steps include notice, an opportunity to opt out, and assurance that the named plaintiff(s) adequately represent the interests of absent class members at all stages of the litigation. See, e.g., Ortiz v. Fibreboard Corp., 527 U.S. 817, 846 (1999); Phillips Petroleum v. Shutts Co., 472 U.S. 797, 811-12 (1985); Eisen, 417 U.S. at 173-74. Unless arbitrators can fulfill this role, class actions cannot be forced into arbitration.
2. The Demise of Class Actions Would Create a Void In TILA Enforcement.

Petitioners' amici have asserted that regulatory enforcement of TWA eliminates the need for class actions. See, e.g., Brief of the Chamber of Commerce of the U.S. at 18-19. These assurances simply do not ring true. The Federal Trade Commission ("FTC"), which has primary enforcement authority over many thousands of consumer finance companies,~' such as Green Tree, has had few resources allocated for enforcement. As a result, its Division of Financial Practices was able to bring only twenty ~,ght TWA cases between January 1998 and December 1999. The suggestion that the regulatory agencies are covering the
field in enforcing TWA is contradicted by industry testimony before Congress. "First and foremost, these laws, and related regulations, need to be enforced more vigorously. Most abuses could be handled quite effectively by better enforcement."~' Indeed, the one recommendation on which all industry representatives agreed was that~reatly enhanced enforcement is needed, not new legislationk In the face of this testimony,



~' 15 U.S.C. 45(a), 1607.

1003 (1999); Izzi v. Mesquite Country Club, 231 Cal. Rptr. 315,320-22 (Ct.
App. 1986); Dickler v. Shearson Lehman Hutton, Inc., 596 A.2d 860, 867
(Pa. Super. Ct. 1991).

~ See In re Knepp, 229 B.R. 821, 842 (Bankr. N.D. Ala. 1999) ("The pervasive use of arbitration agreements in consumer contracts could have the effect of eliminating class actions. If class actions are no longer an option, the vast majority of consumer claims involving relatively small sums of money on an individual basis will be left without a remedy.").
~' See App. 1: Jan. 15, 1999 and Jan. 6,2000 letters from the Chairman of the FTC to the Director of the Federal Reserve Board's Division of Consumer and Community Affairs (signatures on originals).

~ Predatory Lending Practices in the Subpnme Industry: Hearings before the House Comm. on Banking and Fin. Sen's. (May 24, 2000) [hereinafter Predatory Lending Practices] (testimony of Laura Borelli, Nat'l Home Equity Ass'n).

~ Predatory Lending Practices, supra (testimony of Ralph Rohner, Consumer Bankers Ass'n; David Bochnowski, America's Community Bankers; Neill Fendly, National Ass'n of Mortgage Brokers).

24 25

the contention of amici that class actions are no longer necessary cannot be taken seriously.~'

C. Unwritten Arbitration Decisions Undermine TILA
Enforcement.

TWA cases are intended to protect the public at large, focusing primarily on interpreting the Act and regulations, and only secondarily on the facts.~' When, however, arbitration is conducted in private and written decisions are not required, it is difficult, if not impossible, to determine whether an aggrieved part~' 's substantive rights have been upheld in the arbitral forum.-~'

"[P]ublished [TWA] case law is necessary to provide guidance to banks," and private, unpublished decisions "eliminate[ ] that source of guidance." Budnitz, supra, at 326.~' The public resolution of cases involving laws that uphold the public's interest help to guide our society.67' "[W]ritten opinions.., apply necessarily vague positive law to concrete fact situations." Brunet, supra, at 20. The development of law "has a significant purpose to 'channel




~?! State attorneys general enforcement authority under TILA is limited to redressing violations in connection with "high cost" mortgage loans. See
15 U.S.C. 1640(e).

~' See Mark E. Budnitz, Arbitration of Disputes Between Consumers and
Financial Institutions: A Serious Threat to Consumer Protection, Ohio St.
J. on Disp. Resol. 267, 325 (1995). Cf StewartE. Sterk, Enforceability of
Agreements to Arbitrate: An Examination of the Public Policy Defense, 2
Cardozo L. Rev. 481, 492 (1981).

~' See Budnitz, supra, at 319.

~' See also Edward Brunet, Questioning the Quality ofAlternative Dispute Resolution, 62 Tul. L. Rev. 1, 17 (1987).

~2! See Bru net, supra. at 20.
behavior in such manner as to prevent or avoid conflict."' Id. (citation omitted).

In Gilmer, the Court was not confronted with an arbitral forum that failed to provide written public decisions. 500 U.S. at 31-32. Unlike the Green Tree arbitration agreement, the Gilmer arbitration was to be conducted pursuant to the NYSE rules requiring that all arbitration awards be in writing, contain sufficient information describing the nature and resolution of the case, and be made public. ld. Moreover, the Court found that "judicial decisions addressing ADEA claims will continue to be issued because it is unlikely that all or even most ADEA claimants will be subject to arbitration agreements." Id. at 32.

Gilmer stands in sharp contrast to the present case where pre-dispute arbitration clauses have become commonplace in consumer transactions. "It is anticipated that virtually all major banks and lending institutions will implement consumer arbitration procedures within the next five years."~' As a result, consumers are no longer able to avoid arbitration by taking their business elsewherek

The widespread use of consumer arbitration agreements could remove the judiciary's influence from entire industries or economic relationships.22' The courts have been instrumental



~' Alan S. Kaplinsky & Mark J. Levin, Excuse me, but who's the
predator? Banks can use arbitration clauses as a defense, 7 Bus. L. Today
24, 28 (May/June 1998).

~' Senator Feingold stated that "consumer credit lenders are increasingly requiring their customers to use binding arbitration when a dispute arises. ... [Tihe practice is becoming so pervasive that consumers may soon no longer have an alternative, unless they forego use of a credit card or a consumer loan entirely." 146 Cong. Rec. S930, 933-34 (daily ed. Feb. 29, 2000) (statement of Sen. Feingold).

~' David S. Schwartz, Enforcing Small Print to Protect Big Business:
Employee and Consumer Rights Claims in an Age of Compelled
(continued...)

26 27

in defining TWA provisions that serve to protect consumers and guide creditors. If the development of TWA law ceases, the purpose of TWA to provide uniform rules may also cease.

A statute is a legislative policy choice, but without subsequent judicial development through the public resolution of disputes, that policy will remain stagnant, or perhaps wither entirely.... Even if initial principles are established through adjudication, permitting the arbitration of an entire category of claims restricts further evolution in that area of the law by reducing the number and variety of claims presented to the courts.

John V. O'Hara, The New Jersey Alternative Procedure For Dispute Resolution Act: Vanguard of a 'Better Way'?, 136 U. Pa. L. Rev. 1723, 1746 (1988). Indeed, arbitration resolution, without written public decisions, undermines the principle of stare decisis, which preserves our body of law. Stare decisis "promotes evenhanded, predictable and consistent development of legal principles . . . and contributes to the actual and perceived integrity of the judicial process." Payne v. Tennessee, 501 U.S. 808, 827 (1991); see also Planned Parenthood v. Casey, 505 U.S. 833, 854 (1992). As Justice Powell noted, "[Sitare decisis is necessary to have a predictable set of rules on which citizens may rely in shaping their behavior." Justice Lewis F. Powell, Stare Decisis and Judicial Restraint, 47 Wash. & Lee L. Rev. 281, 286 (1990).

In order to preserve the public policy foundation of TWA and provide compliance guidance for creditors, arbitrators resolving cases must apply the statutory law and issue written opinions that are publicly available.
D. Green Tree's Arbitration Clause is Typical of Those Designed to Prevent Consumers From Acting as Private Attorneys General Under TILA.

The current trend of lenders and other businesses to impose binding arbitration on their customers in order to prevent litigation is indisputable.

Consumers have been ganging up on banks. But now the institutions have found a way to defend themselves. . . . Arbitration is a powerful deterrent to class action lawsuits against lenders because the great weight of authority holds that arbitrations cannot be conducted on a class basis unless the parties have agreed to do so. .
Lenders that have not yet implemented arbitration programs should promptly consider doing so, since each day that passes brings with it the risk of additional multimillion-dollar class action lawsuits that might have been avoided had arbitration procedures been in place.

Kaplinsky & Levin, supra, at 24-26, 28.

Green Tree's success in adopting this approach to avoid legal consequences for its lending practices cannot be overlooked. Arbitration agreements have enabled Green Tree to avoid scrutiny of its alleged widespread deceptive practices in the financing of home improvement contracts and mobile home sales throughout the nationJ~t' Having successfully forced many lawsuits into the arbitral forum, Green Tree is now actively seeking to deprive claimants of their substantive right to pursue these claims as class actions. Green Tree has


See, e.g., Harris v. Green Tree Fin. Corp., 183 F.3d 173 (3d Cit. 1999)
(home improvement); Pridgen v. Green Tree Fin. Servicing Corp., 88 F.
_____________________________ Supp. 2d 655 (S.D. Miss. 2000) (mobile home); Green Tree Fin. Corp. V.
Holt, 171 F.R.D. 313 (N.D. Ala. 1997) (class mobile home); Lackey v.
~' (...continued) Green Tree Fin. Corp., 498 S.E.2d 898 (S.C. Ct. App. 1998) (class mobile
Arbitration, 1997 Wis. L. Rev, 33, 59 (1997). home).
28

vigorously opposed the prosecution of these claims through class arbitration.72'

Green Tree's use of the arbitral forum to compel consumers to "forego the substantive rights afforded by the statute" is in direct conflict with the Court's decisions in Mitsubsishi, 473 U.S. at 628, and Gilmer, 500 U.S. at 26. Green Tree's improper use of arbitration undermines the very essence of TWA's private attorney general scheme. Green Tree has, in effect, bypassed the legislative and judicial processes to alter the legal system to meet its own goals and to protect its "bottom line" regardless of or precisely because of the merits of numerous customers' claims. This behavior must not be countenanced by the Court.

CONCLUSION

Consumers' statutory rights under TWA cannot be defeated through the mechanism of the arbitral forum. Consumers who are required to pursue their TWA claims in arbitration must be accorded their full rights and remedies under the statute, including fee-shifting and the pursuit of class claims, and protection of their due process rights in class arbitrations. As long as these rights, remedies, and protections are not afforded
under arbitration agreements, their day in court. July 24, 2000


Elizabeth Renuart
The National Consumer Law Center
18 Tremont Street
Boston, MA 02108
(617) 523-8010

Counsel for Amicus Curiae The National Consumer
Law Center
29

consumers must be permitted



Respectfully submitted,


Nina F. Simon*
Stacy Canan
Jean Constantine-Davis
Deborah Zuckerman
AARP Foundation Litigation

Michael R. Schuster AARP

601 E Street, N.W.
Washington, DC 20049
(202) 434-2060
Counsel for Amicus Curiae AARP

* Counsel of Record










~' Subsequent to the Third Circuit's decision in Harris, 183 F.3d 173 (3d Cir. 1999), Green Tree has opposed allowing these arbitrations to proceed on a class-wide basis. There are no citations to these proceedings because arbitration is not public. See also Lackey v. Green Tree Fin. Corp., 498 S.E.2d 898 (S.C. Ct. App. 1998) (a class action proceeded to class arbitration over Green Tree's objection). See App. 2: Green Tree's Mem. Opp. to Class Arbitration (signature on originals).

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