Amicus Curiae Brief — Green Tree Financial Corp.-Ala. v. Randolph

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JUL 21 2000 No. 99-1235

In the

Supreme Court of the United States

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GREEN TREE FINANCIAL CORP. - ALABAMA,

and GREEN TREE FINANCIAL CORPORATION,

' Petitioners,

LARKETTA RANDOLPH,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Eleventh Circuit

MOTION FOR LEAVE TO FILE BRIEF

AMICUS CURIAE AND BRIEF AMICUS CURIAE

OF TERRY JOHNSON AND THE ILLINOIS

CONSUMER JUSTICE COUNCIL, INC.

IN SUPPORT OF RESPONDENT

DANIEL A. EDELMAN

Counsel of Record

CATHLEEN M. COMBS

JAMES O. LATTURNER

JOHN M. BRODERICK

EDELMAN, COMBS & LATTURNER

120 South LaSalle Street

18th Floor

Chicago, Illinois 60603

(312) 739-4200

Attorneys for Amicus Curiae

Terry Johnson and the Illinois

Consumer Justice Council, Inc.

Midwest Law Printing Company/Photex — Chicago — (312) 321-0220

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1

MOTION FOR LEAVE TO

FILE BRIEF AMICUS CURIAE

Terry Johnson and the Illinois Consumer Justice

Council, Inc., pursuant to U.S. Supreme Court Rule 37,

bring this motion for leave to file an amicus curiae brief

in support of Respondent Larketta Randolph, in Green

Tree Financial v. Randolph, 99-1235 (USCA11). In sup-

port of this motion, Johnson states as follows:

1. Terry Johnson is the plaintiff in Johnson v. Tele-

Cash, Inc., 99-104-GMS, which was filed in the District

Court of the District of Delaware and is currently pend-

ing in the Third Circuit Court of Appeals. Like the

plaintiff in Green Tree Financial Corp v. Randolph,

Johnson filed a class action complaint pursuant to the

Truth In Lending Act, 15 U.S.C. §1601 et seg. (“TILA”).

The claim is based on a short-term, high-interest (917%

APR) loan obtained from the defendant creditors.

2. The defendants’ standard form loan agreements

contain an arbitration clause. The defendants moved

to compel arbitration and the District Court denied

the motion. Johnson v. Tele-Cash, Inc., 82 F. Supp. 3d

264 (D. Del. 1999).

3. Although the outcome is the same as here (arbitra-

tion of a TILA claim was not compelled), the District

Court based its decision on entirely different grounds

than the Eleventh Circuit did in Randolph v. Green Tree

Financial Financial Corp., 178 F.3d 1149 (11th Cir.

1999). The District Court held that there was an “inher-

ent conflict” between TILA’s provision for class actions

and arbitration.

2

4. This Court’s ruling in Green Tree Financial Corp.

v. Randolph will have a substantial impact on John-

son’s case, in which an appeal is pending in the Third

Circuit.

5. The Illinois Consumer Justice Council, Inc. (“ICJC”)

is interested in maintaining the continued effectiveness

of federal, state and local consumer protection laws, in-

cluding the Truth in Lending Act (“TILA”). To this end,

it has engaged in advocacy efforts on behalf of consumers

before federal and state legislatures and courts and ad-

ministrative agencies. While respondent will argue in

favor of that ruling, and ICJC supports respondent’s

position, ICJC’s position is different. ICJC wishes to

point out that Congress created a scheme of enforcing

consumer credit statutes through statutory civil fines

imposed in “private attorney general” class actions.

6. This will be the first Supreme Court ruling on

arbitration clauses in the context of the Truth in Lending

Act, indeed in the context of any consumer protection

statute.

7. The parties have withheld consent to the filing of

this brief.

3

WHEREFORE, Terry Johnson and the Illinois Con-

sumer Justice Council, Inc. respectfully request that this

Court grant them leave to submit their brief amicus

Respectfully submitted,

DANIEL A. EDELMAN

Counsel of Record

CATHLEEN M. COMBS

JAMES O. LATTURNER

JOHN M. BRODERICK

EDELMAN, COMBS & LATTURNER

120 South LaSalle Street

18" Floor

Chicago, Illinois 60603

(312) 739-4200

Attorneys for Amicus Curiae

Terry Johnson and the Illinois

Consumer Justice Council, Inc.

i

TABLE OF CONTENTS

PAGE

TABLE OF CONTENTS ................0.-..... i

TABLE OF AUTHORITIES ..................... iii

INTEREST OF THE AMICUS CURIAE ........... 1

“ie Macias: i, a... ere 1

B. Illinois Consumer Justice Council, Inc. ...... 2

~- SUMMARY OF ARGUMENT .................... 3

EE 6 <6 555s eee 4

i. Ive, oc accel ee 4

II. IF COMPELLING ARBITRATION DIS-

RUPTS THE STATUTORY SCHEME, THE

STATUTORY CLAIM SHOULD NOT BE

METRE i bckacdsc 8

III. THE DISTRICT COURT PROPERLY CON-

CLUDED THAT THERE WAS AN “IN-

HERENT CONFLICT’ BETWEEN COM-

PELLING ARBITRATION AND THE UN-

DERLYING PURPOSES OF TILA AND

PO 565408 b 5d ee eee 12

A. The Purpose of TILA ...........000¢-. 13

B. TILA’s Private Attorney Generals ...... 24

ii

IV. PROLIFERATION OF ARBITRATION

CLAUSES IN CONSUMER LOANS INSU-

LATES CREDITORS FROM CLASS AC-

THOM PENAL 20 cccsc se cencesscecsscs

CONCLUSION .cccscsnccscccnoccsccsecccveass

se ee.

ee eT ee a ee

TABLE OF AUTHORITIES

Cases PAGE(S)

Baltimore & Ohio Chicago Terminal R. Co.

v. Wisconsin Central Ltd., 154 F.3d 404

a | rer ce ere 9, 12, 20

Bantolina v. Aloha Motors, Inc.,

419 F. Supp. 1116 (D.Haw. 1976) ....... 14, 15, 17

Bizier v. Globe Fin. Services, Inc.,

— ' & Bat fe Se errr rey 25

Broughton v. Cigna Healthplans of California,

21 Cal. 4th 1066 P.2d 67 (Cal. 1999) ....... 23, 25

Buford v. American Finance Co.,

333 F. Supp. 1243 (N.D.Ga. 1971) ............ 22

Champ v. Siegel Trading Co.,

55 F.3d 269 (7th Cir. 1995) ..........ccceveees 9

Cole v. Burns Int'l Security Services,

105 F.3d 1465 (D.C. Cir. 1997) ............... 10

Fastfunding the Company Inc. v. Betts,

2000 Fla. App. LEXIS 3771

(Fla. App. Ct. March 31, 2000) ............... 26

Gilmer v. Interstate / Johnson Lane Corp.,

gee tt re ee ee 10, 15, 21

Graham Oil Co. v. ARCO Products Co.,

roof Bs ee | eer eee 11

1V

Hooters of America, Inc. v. Phillips,

39 F. Supp. 2d 582 (D.S.C. 1998) .......... 10, 22

In re Knepp,

229 B.R. 821 (Bankr. N.D.Ala. 1999) .......... 10

James v. Home Construction Co.,

689 Poe 1867 (L1G Civ. 16GB) onc ccc cece: 25

Johnson v. Tele-Cash, Inc.,

82 F. Supp. 2d 264 (D. Del. 1999) ......... passim

Lopez v. Plaza Fin. Co., a

No. 95-C-7567, 1996 WL 210073

fei es & Peerrererrerree 13, 14, 19

Lozada v. Dale Baker Oldsmobile, Inc.,

No. 99 CV 620 (W.D. Mi. Mar. 27, 2000) ....... 13

Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) ... 8, 10, 18, 23

Paladino v. Avnet Computer Technologies, Inc.,

134 F.3d 1054 (11th Cir. 1998) ................ 9

Parker v. DeKalb Chrysler Plymouth,

673 F.2d 1178 (11th Cir. 1982) ............ 21, 24

Powertel, Inc. v. Bexley,

743 So.2d 570 (Fla. App. Ct. 1999) sect e ee eees 19

Pritzker v. Merril Lynch,

ree geek ft. | errr ers ee 17, 22

Vv

Randolph v. Green Tree Financial Corp.,

178 F.3d 1149 (11th Cir. 1999) .......... 1, 3, 4,9

Ratner v. Chemical Bank of New York Trust Co.,

pe SiR ii gS 8 es re 14, 24

Rodash v. AIB Mortgage Co.,

16 F.3d 1142 (1ith Cir. 1904) ..........02000. 22

Sagal v. First USA Bank, N.A..,

69 F. Supp. 2d 627 (D. Del. 1999) ............. 13

Shankle v. B-G Maintenance Management of — _-

Colorado, Inc., 163 F.3d 1230 (10th Cir. 1999) ... 9

Shearson /American Express v. McMahon,

Se Gh PED ob. 6 wk hee eee ked eee asseo 4,8

Sosa v. Fite,

fm Bee fee oe 25

Sues v. John Nuveen & Co., Inc.,

146 F.3d 176 (Sd Cir. 1996) ..........cceee 18, 20

Thomas v. Myers-Dickson Furniture Co.,

O70 Fe Fe ee Ge TO) noc iv vccecrccnvess 25

Thompson v. Illinois Title Loans, Inc.,

2000 U.S. Dist. LEXIS 232

Pe a Ny BEE 6 6s 66s et sc cccer reves 26

Watkins v. Simmons & Clark,

618 F.2d 398 (6th Cir. 1980) ........... 14, 15, 17

vi

Statutes

a ee en 1,3

ae ee ee ee 9, 14, 15, 19

pe ee OR OUD. 55 i 6's 40's Saw ch va nxwecakns 9

Other Authority

Arbitration of Employment Disputes

Without Unions, 66 CHI.-KENT L.

ME A ye nr eee 12

The Austin American-Statesman,

I es SI ko Ga a vO oso ce cae ak bwbeas 26

i EE ccd S cued ecenkndsde canker is passim

1

INTEREST OF THE AMICUS CURIAE

A. Terry Johnson

Terry Johnson is the plaintiff in Johnson v. Tele-Cash,

Inc., 99-104-GMS, which is pending in the District Court

of the District of Delaware.’ Like the plaintiff in Green

Tree Financial Corp. v. Randolph, Johnson filed a class

action complaint pursuant to the Truth in Lending Act,

15 U.S.C. §1601 et seg. (“TILA”). Johnson’s claims are

based on a short-term, high-interest loan obtained from

the defendant creditors.

The defendants’ standard form loan agreements con-

tained an arbitration clause. The defendants moved to

compel arbitration and the District Court denied the

motion. Johnson v. Tele-Cash, Inc., 82 F. Supp. 2d 264

(D. Del. 1999). The District Court denied the motion on

different grounds than those found in the Eleventh Cir-

cuit opinion that is being reviewed in this case. The

defendants in Johnson v. Tele-Cash, Inc. have appealed

the District Court ruling and that appeal is currently

pending in the Third Circuit.

This Court’s ruling on the matter could have a sub-

stantial impact on Johnson’s case in that this will be the

first Supreme Court ruling on arbitration clauses in the

context of the Truth in Lending Act, indeed in the context

of any consumer protection statute. Therefore, Terry

' This brief was authored by counsel for Terry Johnson and the

Illinois Consumer Justice Council, Inc. (“ICJC”). No one other

than the ICJC or council for Johnson and ICJC made a mone-

tary contribution to the preparation or submission of this brief.

2

Johnson respectfully requests this Court grant his mo-

tion to file this amicus curiae brief.

B. Illinois Consumer Justice Council, Inc.

The Illinois Consumer Justice Council, Inc. (“ICJC”) is

interested in maintaining the continued effectiveness of

federal, state and local consumer protection laws, includ-

ing the Truth in Lending Act (“TILA”). To this end, it has

engaged in advocacy efforts on behalf of consumers before

federal and state legislatures and courts and administra-

tive agencies.

This appeal involves the issue of whether arbitration

clause should insulate an entire industry from class

action penalties prescribed by the TILA. The Eleventh

Circuit has held that TILA claims cannot be arbitrated

unless it is clear that the fee shifting provisions are of

the statute are expressly left intact. While respondent

will argue in favor of that ruling, and ICJC supports

respondent’s position, ICJC’s position is different. ICJC

wishes to point out that Congress created a scheme of

enforcing consumer credit statutes through statutory

civil fines imposed in “private attorney general” class ac-

tions. ICJC therefore asks this Court to hold that TILA

claims are not arbitrable because of the inability to

obtain the penalty through arbitration. The arbitration

clause would effectively waive a penalty to which Con-

gress intended to subject defendants in the public in-

terest.

3

SUMMARY OF ARGUMENT

The Eleventh Circuit in Randolph v. Green Tree Finan-

cial Corp., 178 F.3d 1149, 1158 (11th Cir. 1999) held that

an arbitration clause in a credit transaction was unen-

forceable because the arbitration clause was silent as

to whether a consumer bringing a suit pursuant to the

Truth In Lending Act, 15 U.S.C. §1601 et seg. (“TILA”)

would be awarded fees and costs if she prevailed (because

TILA is a fee shifting statute). Since arbitration in this

case could not guarantee “that a consumer successfully

arbitrating under this clause will not be saddled with a

prohibitive costs order” it could not be said the con-

sumer’s ability to “vindicate her statutory rights will not

be undone. . .” Jd.

The plaintiff in Johnson v. Tele-Cash, Inc. also brought

a cause of action pursuant to the TILA. Johnson brought

his suit as a class action, as did the plaintiff in Green

Tree Financial. The Eleventh Circuit did not consider

whether the fact that the plaintiff had brought a class

action suit pursuant to TILA, which specifically encour-

ages and provides for class actions, also was a basis for

not enforcing the arbitration clause because plaintiffs

cannot bring class actions in arbitration.

The District Court in Johnson v. Tele-Cash, Inc. held

that because Congress clearly intended that TILA be

enforced through the use of a civil fine imposed in a

“private attorney general” class action, the arbitration

clause at issue was not enforceable. The District Court in

Johnson followed Supreme Court precedent and deter-

mined that there was an “inherent conflict” between ar-

bitration and the purpose of the Truth in Lending Act,

15 U.S.C. §1601 et seq. (“TILA”) and the Electronic Funds

4

Transfer Act, 15 U.S.C. §1693 et seg. (“EFTA”). See

Shearson /American Express v. McMahon, 482 U.S. 220,

227 (1987). The District Court analyzed the text of the

statutes and legislative history and rightfully concluded

that Congress was of the view that class actions were

necessary to promote nationwide, uniform conformity

with the TILA and to provide a meaningful enforcement

provision for both statues. Enforcing arbitration would

defeat Congress’ express purpose of “encouraging” class

actions. “(T]here would be no way to ‘provide creditors

with a meaningful incentive to comply with the law’ since

they would not longer be facing the ‘meaningful penalty

provisions [which were] needed to [e]nsure compliance.”

See Johnson, 82 F. Supp. at 269-70 (quoting S. Rep. 93-

278, at 14-15). Thus, this provides an alternative basis

for affirming the Eleventh Circuit decision in Randolph

v. Green Tree Financial Corp.

ARGUMENT

I. INTRODUCTION

On July 10, 1998, Johnson applied for and received a

short-term loan in the amount of $ 250 from the County

Bank of Rehoboth Beach. The one-page loan agreement -

set forth an annual percentage rate of 917 percent and a

finance charge of $88.’ As a result, Johnson was required

* The plaintiff in Johnson alleges that (1) the loan violated

EFTA by imposing an irrevocable authorization for electronic

payment; (2) the annual percentage rate and finance charge

were not more conspicuous than any other terms in violation of

(continued...)

5

to repay his $250 loan by making one payment of $338 on

July 24, 1998—two weeks after he submitted his loan

application and received the $ 250.

The loan agreement provided the following “boiler

plate” arbitration clause which, in relevant part, reads:

ARBITRATION: You and we agree that any claim,

dispute, or controversy between us... and any claim

arising from or relating to this Note, no matter by

whom or against whom .. ., including the validity of

this Note and of this agreement to arbitrate disputes

as well as claims alleging fraud or misrepresentation

shall be resolved by binding arbitration .. . . This

arbitration agreement is made pursuant to a transac-

tion involving interstate commerce and shall be

governed by the Federal Arbitration Act, 9 U.S.C.

§§ 1-16. Judgment upon the award may be entered by

any party in any court having jurisdiction.

(emphasis added).

Below this paragraph, the loan agreement provides two

others which state: “Notice: You and we would have had

a right or opportunity to litigate disputes through a court

but have agreed instead to resolve disputes through bind-

ing arbitration.” The document further provided, “By

signing and sealing below, you agree to all of the terms

of this Note including the agreement to arbitrate dis-

putes.”

Examples of arbitration clauses in other short-term,

high-interest loans (oftentimes known as “payday” loans)

are as follows:

2 (...continued)

TILA; (3) the loan was unconscionable, and (4) the arbitration

clause should be declared void.

6

Check into Cash of Indiana, LLC, dba Check into

Cash, 10075 E. Washington St., Indianapolis, IN 46229,

(547.50% APR)

“ARBITRATION. Any controversy, claim or dispute aris-

ing out of or relating to this Agreement, or the breach

thereof, whether sounding in tort, contract or otherwise

shall be settled pursuant to the Indiana Arbitration Act,

I.C. § 34-4-1-1, et seq., upon the complaining party sub-

mitting tot he other party in writing an explanation of

the claim and a demand that the claim be resolved by

arbitration. If the other party does not respond to the

submittal in writing within ten (10) days of its receipt,

the claimant may pursue this claim through arbitration,

court action or other means otherwise available. The

arbitration shall be conducted by a single arbitrator

selected by agreement between the parties hereto, or by

petitioning the Indiana superior or circuit court to select

the arbitrator if no agreement on the selection of an

arbitrator can be reached by mutual agreement of the

parties. Each party shall bear the costs of their own

respective attorneys’ fees in connection with any arbitra-

tion hereunder, and all costs and expenses other than

attorneys’ fees will be paid in accordance with the award

issued by the arbitrator. Any and all damages awarded

by the arbitrator shall be subject to confirmation by any

court of the State of Indiana or any federal court .ocated

therein having proper jurisdiction.”

Check ‘n Go of Illinois, Inc., 2317 S. Cicero Ave.,

Chicago, IL 60804 (521.43% APR)

“Arbitration Provision. ... There shall be no authority for

any claims to be arbitrated on a class action basis. . .”

[Note: This is found in the middle of a two-paragraph,

twenty-seven line arbitration clause.]

7

National Money Service, Inc. 1156 W. 103d St., Ste

201, Kansas City, MO 64114 (APR allegedly not dis-

closed but estimated to be 780%)

“Arbitration You and we agree that any claim, dispute or

controversy between us any claim either of us against the

other (or the agents, servicers or assigns of the other

including the company) and any claim arising from or

relating to the agreement-no matter by whom or against

whom made including the validity of this agreement to

arbitrate disputes as well as claims alleging fraud or

misrepresentation shall be resolved by binding arbitra-

tion by and under the code of procedure of the National

Arbitration Forum... .”

Hoosier Check Cashing of Ohio, Ltd., 2839 E. State

Bivd., Ft. Wayne, IN 46805 (260.71% APR)

“ARBITRATION. To pursue any claim, demand dispute

or cause of action (“claim”) arising under this Agreement

or any breach or default thereof, the claimant must

submit to the other party in writing an explanation of the

claim and a demand that the claim be resolved by

arbitration. If the other party does not respond to the

submittal in writing within ten (10) days of its receipt,

the claimant may pursue the claim though (sic) arbitra-

tion, court action or any other means otherwise available.

If the other party responds to the submittal in writing

within ten (10) days of its receipt, the claim must be

submitted to binding arbitration in accordance with the

rules of the Uniform Arbitration Act approved by the

National Conference of Commissioners on Uniform State

Laws of the American Bar Association, as amended. The

arbitration shall be conducted by a single independent

arbitrator selected by Check$mart and conducted in the

county where this Agreement was signed. The expenses

of the arbitration, including attorney’s fees, will be paid

in accordance with the award issued by the arbitrator.”

8

Il. IF COMPELLING ARBITRATION DISRUPTS THE

STATUTORY SCHEME, THE STATUTORY CLAIM

SHOULD NOT BE ARBITRATED

The District Court in Johnson was correct in following

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,

473 U.S. 614 (1985) and Shearson/American Express v.

McMahon, 482 U.S. 220, 227 (1987). When dealing with

statutes that evince a contrary congressional mandate,

“deducible from text or legislative history,” arbitration is

precluded on those claims. Mitsubishi, 473 U.S. at 628

(emphasis added). This intent is “deducible from . . . an

inherent conflict between arbitration and the statute’s

underlying purposes.” McMahon, 482 U.S. at 227.°

In Gilmer v. Interstate /Johnson Lane Corp., the Su-

preme Court held that “So long as the prospective liti-

gant effectively may vindicate [his or her] statutory cause

of action in an arbitral forum, the statute will continue

to serve both its remedial and deterrent function.” Gilmer

v. Interstate / Johnson Lane Corp., 500 U.S. 20, 28 (1991)

(quoting Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614 (1985) (quotations omitted).

3 This is consistent with the long-standing principle of statu-

tory construction that the implications of one statute may be

altered by the implications of a later statute. See, e.g., FDA v.

Brown & Williamson Tobacco Corp., 2000 U.S. LEXIS 2195,

No. 98-1152, 2000 WL 289576, at *13 (Mar. 21, 2000); Health-

care v. Watson Pharmaceuticals, Inc., 2000 U.S. App. LEXIS

6200, *20 n.3 (2d Cir. April 4, 2000); Sunshine Health Systems

v. Bowen, 842 F.2d 1097, 1101 (9th Cir. 1988); In re Johnson,

787 F.2d 1179, 1182 (7th Cir. 1986). Of course, this is not the

same as arguing that a prior statute was repealed by impli-

cation by a later statute.

9

Where the arbitration clause would be a barrier to a

litigant’s exercise of his or her statutory rights, the

arbitration clause is unenforceable. Randolph v. Green

Tree Financial Corp., 178 F.3d 1149, 1157 (11th Cir.

1999) cert. granted, Green Tree Financial Corp. v.

Randolph, ___ U.S. ___, 120 S. Ct. 1552 (2000); Paladino

v. Aunet Computer Technologies, Inc., 134 F.3d 1054,

1062 (11th Cir. 1998) (“When an arbitration clause has

provisions that defeat the remedial purpose of [a] statute,

... the arbitration clause is not enforceable”).

“(A]rbitration of statutory claims works because po-

tential litigants have an adequate forum in which to

resolve their statutory claims and because the broader

social purposes behind the statute are adhered to. This

supposition[ ] falls apart, however, if the terms of an

arbitration agreement actually prevent an individual

from effectively vindicating his or her statutory rights.

Accordingly, an arbitration agreement that prohibits use

of the judicial forum as a means of resolving statutory

claims must also provide for an effective and accessible

alternative forum.” Shankle v. B-G Maintenance Manage-

ment of Colorado, Inc., 163 F.3d 1230, 1234 (10th Cir.

1999).

Congress specifically provided for class action relief

when enacting TILA, 15 U.S.C. §1640, and EFTA, 15

U.S.C. §1693m. Such relief is beyond the power of an

arbitrator. Champ v. Siegel Trading Co., 55 F.3d 269 (7th

Cir. 1995). If an arbitrator cannot grant the relief speci-

fied in TILA, the TILA claim cannot be subject to arbitra-

tion. Baltimore & Ohio Chicago Terminal R. Co. v. Wis-

consin Central Ltd., 154 F.3d 404 (7th Cir. 1998). Even

where the claim is of a type which can normally be

10

arbitrated, if the arbitrators are deprived of the ability to

afford complete relief, the particular arbitration clause

cannot be enforced. Hooters of America, Inc. v. Phillips,

39 F. Supp. 2d 582 (D.S.C. 1998). An arbitration clause

is unreasonable when it requires a consumer to give up

access to the courts, forsake his rights and constitutional

protections. See In re Knepp, 229 B.R. 821, 838 (Bankr.

N.D.Ala. 1999).

In Cole v. Burns Int’l Security Services, 105 F.3d 1465,

1481-82 (D.C. Cir. 1997), the court emphasized that an

arbitration clause cannot be used to deprive persons

protected by the law of their substantive rights:

The starting point of our analysis is the Supreme

Court’s decision in Gilmer v. Interstate/ Johnson

Lane Corp., 500 U.S. 20 (1991). In that case, the

Court held that an employee’s agreement to ar-

bitrate employment-related disputes may require

him to arbitrate statutory claims under the ADEA

because “by agreeing to arbitrate a statutory

claim, [an employee] does not forgo the substan-

tive rights afforded by the statute; [he] only

submits to their resolution in an arbitral, rather

than a judicial, forum.” Gilmer, 500 U.S. at 26

(quoting Mitsubishi, 473 U.S. at 628) (first alter-

ation in original). As noted above, the Court

emphasized that “so long as the prospective

litigant effectively may vindicate [his or her]

statutory cause of action in the arbitral forum,

the statute will continue to serve both its reme-

dial and deterrent function.” Id. at 28 (quoting

Mitsubishi, 473 U.S. at 637) (alteration in origi-

nal)....

Obviously, Gilmer cannot be read as holding that

an arbitration agreement is enforceable no mat-

ter what rights it waives or what burdens it

11

imposes. See Gorman, 1995 U. ILL. L. REV. at 644

(“The Supreme Court in the Gilmer case did not

hold that any sort of arbitration procedure before

any manner of arbitrator would be satisfactory in

the adjudication of public rights.”). Such a hold-

ing would be fundamentally at odds with our

understanding of the rights accorded to persons

protected by public statutes like the ADEA and

Title VII. The beneficiaries of public statutes are

entitled to the rights and protections provided by

the law. Clearly, it would be unlawful for an

employer to condition employment on an em-

ployee’s agreement to give up the right to be free

from racial or gender discrimination. [citation]

Any such condition of employment would violate

Title VII, regardless of whether or not the agree-

ment was viewed as a contract of adhesion. Thus,

in a subsequent suit by the employee raising a

viable claim of racial discrimination or sexual

harassment, it would be no defense that the

employee had signed a contract giving up her

right to be free from discrimination.

Similarly, an employee cannot be required as a

condition of employment to waive access to a

neutral forum in which statutory employment

discrimination claims may be heard. ... At a

minimum, statutory rights include both a sub-

stantive protection and access to a neutral forum

in which to enforce those protections. See Gra-

ham Oil Co. v. ARCO Products Co., 43 F.3d 1244,

1246-48 (9th Cir. 1994) (arbitration clause that

purported to waive remedies provided by federal

statute and to shorten statute of limitations for

filing such claims violated statute and was unen-

forceable); JEROLD S. AUERBACH, JUSTICE

WITHOUT LAW? 144-45 (1983) (preservation of

“individual rights requires an accessible legal

system for their protection” and enforcement)....

cil

12

Cole further held that “(t]he premise of the [Supreme]

Court’s rulings . . . is that arbitration entails only a

waiver of a procedural right to a judicial forum rather

than a waiver of any substantive right accorded by the

statute. Id., at 1483, quoting S. Estreicher, Arbitration of

Employment Disputes Without Unions, 66 CHI.-KENT L.

REV. 753, 791 (1990).

The inconsistency between the substantive statute and

arbitration need not be express. As the Seventh Circuit

held in Baltimore & Ohio Chicago Terminal R. Co. v.

Wisconsin Central Ltd., supra, 154 F.3d at 410-11, “No

provision of the Interstate Commerce Act expressly

forbids the arbitration of claims under the Act. But the

cases we have cited hold that the statutory prohibition

need not be express to be effective; as in other cases of

preemption, it is enough if allowing arbitration would

disrupt the statutory scheme.” See also McMahon, 482

U.S. at 227 (whether there is an “inherent conflict” is

“deducible” between arbitration and the statute’s under-

lying purposes).

Notwithstanding, creditors seek to insulate themselves

from TILA’s class action penalties and thereby thwart

Congressional goals of promoting nationwide uniform

compliance.

lll. THE DISTRICT COURT PROPERLY CONCLUDED

THAT THERE WAS AN “INHERENT CONFLICT”

BETWEEN COMPELLING ARBITRATION AND

THE UNDERLYING PURPOSES OF TILA AND

EFTA

“[W]ithout the possibility of class action liability loom-

ing on a creditor’s horizon, there is a very real possibility

13

that these entities will not voluntarily comply with the

Truth-in-Lending regulations.” See Johnson, 82 F. Supp.

2d at 271. The District Court correctly recognized Con-

gress’ concerns about lack of nationwide compliance and

that the purpose of the class action remedy was to en-

sure such compliance. See S.Rep. 93-278 at 14-15 (“The

Committee believes a maximum class action liability of

$100,600* is sufficient to deter potential violations and

achieve widespread compliance.”). Without this remedy,

the Court held the penalty of class relief imposed by

Congress would be evaded and the consumer protection

statutes would lose their sting.

A. The Purpose of TILA.

It is evident that Congress, in enacting the 1974

amendments to TILA, intended to create a private attor-

ney general class action right for the express purpose of

“insur(ing] nationwide adherence to uniform disclosures”

and providing a vehicle by which courts can “assess a

meaningful penalty upon a creditor to induce compliance

with” TILA’s requirements. S.Rep. 93-278, 14-15. The

District Court correctly rejected the holdings of Lopez v.

Plaza Fin. Co., No. 95-C-7567, 1996 WL 210073 (N.D. Ill.

Apr. 26, 1996) and Sagal v. First USA Bank, N.A., 69 F.

Supp. 2d 627 (D. Del. 1999). These courts failed to appre-

ciate the intent of Congress. Their approach is inconsis-

tent with the Supreme Court opinions that require this

analysis. See Lozada v. Dale Baker Oldsmobile, Inc., No.

99 CV 620, 2000 U.S. Dist. LEXIS 4122 (W.D. Mi. Mar.

* Later this section was amended upward to $500,000.

14

27, 2000) (rejecting Lopez because decision in Johnson is

a more “thorough discussion” of how remedial purposes

of TILA are defeated by arbitration clauses).

The District Court reviewed the substantial amount of

legislative history available that demonstrates Congress

thoroughly evaluated its options for enforcement and

purposefully incorporated class actions into its scheme

for enforcement by “private attorney generals.” In 1974,

Congress amended §1640 to provide a cap on liability for

class actions brought under TILA. Watkins v. Simmons

& Clark, 618 F.2d 398, 400 (6th Cir. 1980); Bantolina v.

Aloha Motors, Inc., 419 F. Supp. 1116, 1119-20 & n.10

(D.Haw. 1976). This amendment was in direct response

to courts’ reluctance to certify classes under TILA. Prior

to the amendment, a plaintiff was entitled to a minimum

award of $100 under the statute. See 15 U.S.C. §1640

(1970). Without the cap, if a class action lawsuit involved

millions of consumers, a defendant creditor would be

liable for “an astronomical damage figure.” For this

reason, numerous courts found class actions not to be a

superior method of adjudication because of the extreme

penalty. The courts found this to be “inconsistent” with

the “remedy Congress prescribed as the means of private

enforcement.” See Ratner v. Chemical Bank of New York

Trust Co., 54 F.R.D. 412, 414 (S.D.N.Y. 1972).

As stated by the District Court, “In response to these

decisions, Congress amended the statute to provide a

limit on the maximum recovery available under the

TILA. This amendment was intended to encourage the

federal courts to begin certifying class actions in Truth in

Lending lawsuits.” See Johnson, 82 F. Supp. 2d at 269; S.

15

Rep. 93-278, at 14-15 (1973); Watkins, 618 F.2d at 400

n.6; Bantolina, 419 F. Supp. 1116, 1119-20 & n. 11.

It was Congress’s express intent to encourage the use

of class actions as an enforcement mechanism. See

Watkins, 618 F.2d at 401 & n.7 (citing S. Rep. 94-590,

reprinted in 1976 U.S. Code Cong. & Admin. News, at

431, 438). While the amendment limited the exposure of

creditors to the lessor of $500,000 or 1 per centum of

their net worth, the amendment provided “a workable

structure for private enforcement.” Jd. Congress con-

cluded the cap to be a sufficient deterrent against a

creditor of any size.

Congress decided that the statute would be enforced

privately, and with class actions, not by a federal agency,

such as the FTC. “The purpose of the civil penalties

under [the] Truth in Lending [Act] was to provide cred-

itors with a meaningful incentive to comply with the

law without relying on an extensive new bureaucracy.”

S. Rep. 93-278, at 14.

The defendants in Johnson v. Tele-Cash, Inc. argue

that Gilmer means that the inability to bring a class

action does not make an arbitration clause unenforce-

able. But that argument takes Gilmer out of context. The

court recognized that the EEOC, the administrative

agency charged with enforcing the ADEA (the statute at

issue in Gilmer), was still able to bring class actions.

Gilmer, 500 U.S. at 32. Thus, the court relied in part on

the fact that a federal agency had the power to enforce a

statute with class actions; but, in this case, an agency is

not effectively structured to do so, which Congress

recognized and instead opted to encourage individuals to

bring class actions. See Watkins v. Simmons & Clark,

16

Inc., 618 F.3d 398, 400 (6th Cir. 1980) (holding that the

intended purpose of the TILA was to encourage class

actions in the truth-in-lending context because of the

apparent inadequacy of the Federal Trade Commission’s

enforcement resources) (citing S. Rep. 93-278, at 14-15).

It is important to note that Congress intended TILA

remedies to be punitive in nature, rather than compensa-

tory. Class actions under a statute such as the ADEA as

discussed in Gilmer are really accumulating individual

claims, whereas TILA class actions seek to impose statu-

tory damages determined in the same manner as a crim-

inal fine. Congress characterized the statutory damages

provision as “the civil penalties section.” S. Rep. 93-278,

at 14.

Section 1640 provides that “In determining the amount

of award [of statutory damages] in any class action, the

court shall consider, among other relevant factors, the

amount of any actual damages awarded, the frequency

and persistence of failures of compliance by the creditor,

the resources of the creditor, the number of persons

adversely affected, and the extent to which the creditor’s

failure of compliance was intentional.” The damages are

thus assessed in the same manner as a fine or punitive

damages, and the classwide statutory damages are not

merely a convenient means of enforcing the individual

rights of numerous class members. Because this penalty

is similar to a fine, creditors should not be allowed to

escape its effects by contract.

The purpose of the cap was to provide a meaningful

incentive to effectuate compliance with the law and yet

make the penalty reasonable. S. Rep. 93-278 at 14. Con-

gress, concurring with the Federal Reserve Board, found

17

that “potential class action liability [wa]s an important

encouragement to the voluntary compliance which [wa]s

so necessary to ensure nation-wide adherence to uniform

disclosure” since “[mJost Truth in Lending violations do

not involve actual damages and . . . some meaningful

penalty provisions are therefore needed to [e]nsure com-

pliance.” See Johnson, 82 F. Supp. 2d at 270 (quoting

S. Rep. 93-278, at 15). This is why it has been held that

class-action exposure is “essential to the prophylactic

intent” of TILA. Bantolina, 419 F. Supp. at 1120. This is

what gives the statute its “sting.” Jd.

Thus there was ample evidence of Congressional intent

for the District Court to conclude that “Congress did

intend . . . to encourage class actions and to use the

threat of class action recoveries to force compliance with

the Act.” See Johnson, 82 F. Supp. 2d at 270 (quoting

Watkins, 618 F.2d at 402). The legislative history for

TILA relied on by the District Court is more developed

and expansive than a “general statement of legislative

purpose.” See Pritzker v. Merril Lynch, 7 F.3d 1110, 1119

(3d Cir. 1993). In Pritzker, the Court held that ERISA

claims were arbitrable; it rejected statements that Con-

gress intended the courts to provide a consistent source

of law to help plan “administrators, fiduciaries and par-

ticipants to predict the legality of proposed actions,” be-

cause “general statements of legislative purpose” would

not be sufficient to prohibit enforcement of arbitration

agreements. Jd. Nor would the Court draw an inference

from a statute’s jurisdictional provisions to mean that

arbitration was precluded.

Here, Johnson is not relying on TILA’s jurisdictional

provisions. The legislative history here is far more

18

specific than what Pritzker rejected. The District Court

did not rely merely on general statements of legislative

purpose but Congress’ recurrent modification of the

statute for the express purpose of “encouraging class

actions.” The Senate Report reveals that Congress en-

gaged in a thorough investigation and analysis in order

to counter judicial hostility to TILA class actions and yet

to still effectuate the goal of national uniform compli-

ance. This is the same sort of legislative history that this

Court relied on in Sues v. John Nuveen & Co., Inc., where

the Court held that Congress had expressed its intent to

“encourage” arbitration in the context of the Civil Rights

Act of 1991. Sues v. John Nuveen & Co., Inc., 146 F.3d

175, 182 n.1 (3d Cir. 1998). Therefore, any argument that

the legislative history is insubstantial must be rejected.

The District Court correctly concluded that by compel-

ling arbitration, Johnson would be precluded from seek-

ing class relief. This would strip the federal statute of its

“sting” and reduce it to nothing more than its mere

“nuisance” value. Consequently, creditors were not pro-

vided with a “meaningful incentive for compliance” since

they would not be facing a “meaningful penalty provi-

sion.” S. Rep. 93-278 at 14, 15. Congress determined this

to be an effective and desirable means of vindicating the

statute’s cause of action and that class actions served a

meaningful remedial and deterrent function. In light of

this and the Supreme Court opinion in Mitsubishi, the

District Court found an “inherent conflict” between com-

pelling arbitration and the underlying purposes of TILA.

See Johnson, 82 F. Supp. 2d at 271.

While the statute does not provide an automatic right

to $500,000 worth of class relief (for obvious due process

19

concerns), it cannot be ignored that Congress intended

for class relief to be part of its statutory scheme, and for

this reason the District Court disagreed with Lopez. The

District Court found that “by enforcing the boiler plate

arbitration clause which is contained in this (an every

other) one-page loan agreement unilaterally drafted by

the defendants, the court would be allowing them to

effectively insulate themselves against the very statutory

penalties which Congress deemed necessary to ‘provide

creditors with a meaningful incentive to comply with the

law.’” See Johnson, 82 F. Supp. 2d at 269 (quoting S.

Rep. 93-278, at 14); see also Powertel, Inc. v. Bexley, 743

So.2d 570, 576 (Fla. App. Ct. 1999) (“The arbitration

clause also effectively removes Powertel’s exposure to

any remedy that could be pursued on behalf of a class of

consumers. . . Class litigation provides the most economi-

cally feasible remedy for the kind of claim asserted here.

The potential claims are too small to litigate individu-

ally. . . The prospect of class litigation ordinarily has

some deterrent effect on a manufacturer or service pro-

vider, but that is absent here. . .”).

For example, Johnson could only recover a maximum

of $1,000 statutory damages, see 15 U.S.C. §§ 1640(a)(1)

(2A), whereas, as a representative of a class, he could

obtain 500 times that amount. Enforcing the arbitration

clause raises doubts as to whether TILA could serve both

its “remedial and deterrent functions.” See Johnson, 82

F. Supp. 2d at 270 (quoting S. Rep. 93-278, at 14).

Congress need not expressly discuss alternative dispute

resolution options for a statute to preclude arbitration.

But Congress need not discuss and reject all other op-

tions of enforcement. “[T]he cases we have cited hold that

20

the statutory prohibition need not be express to be ef-

fective; as in other cases of preemption, it is enough if

allowing arbitration would disrupt the statutory scheme.”

Baltimore & Ohio Chicago Terminal, 154 F.3d 404, 410

(7th Cir. 1998). TILA provides for class actions and judi-

cial enforcement for exactly the same reasons that the

Interstate Commerce Act at issue in Baltimore & Ohio

confided certain tariff issues to the Surface Transporta-

tion Board—nationwide compliance and uniformity are

essential. The statutory scheme here is to allow suit by

“private attorney generals” and create liability of up to

$500,000 or 1% of net worth for noncompliance.

In fact, because Congress has expressly “encouraged”

arbitration of other statutory causes of action, principles

of statutory interpretation would suggest that if Con-

gress intended to encourage arbitration of statutory

rights it could do so. See Sues v. John Nuveen & Co., Inc.,

146 F.3d 175, 182 (3d Cir. 1998) (discussing Section 118

of the Civil Rights Act of 1991). Section 118 provides:

“Where appropriate and to the extent authorized by law,

the use of alternative dispute resolution, including .. .

arbitration, is encouraged to resolve disputes arising

under [Title VII and the ADEA].” In relying on the same

source of legislative history that the District Court did in

this case, this Court found Congress sufficiently ex-

pressed its intent that claims under the ADEA may be

arbitrated. This Court held:

“Not surprisingly there is ample legislative history

to support a straightforward reading of the text of

§§ 118. The Report of the House Committee on the

Judiciary, for example, explains §§ 118 as follows:

‘This section “encourages” the voluntary use of con-

ciliation, mediation, arbitration, and other methods

21

of resolving disputes under Civil Rights laws govern-

ing employment discrimination.

We agree that voluntary mediation and arbitration

are far preferable to prolonged litigation for resolving

employment discrimination claims. . .

We recognize that mediation and arbitration, know-

ingly and voluntarily undertaken, are the preferred

methods of settlement of employment discrimination

disputes.

H.R. Rep. No. 40(II), 102d Cong., 1st Sess. 78 (1991),

reprinted in 1991 U.S.C.C.A.N. 694, 764.’” Sues, 146

F.3d at 182 n.1.

To conclude that arbitration precludes Johnson’s pur-

suit of his class action claim is to say he waived this

remedy under TILA. This is precisely what Congress

intended to prevent by providing that it is unlawful to

discriminate against the exercise of any right under the

Consumer Credit Protection Act. 15 U.S.C. §1691(a)(3).

In Parker v. DeKalb Chrysler Plymouth, supra, 673

F.2d 1178, 1182 (11th Cir. 1982), the court held that a

general release did not apply to TILA claims. In so hold-

ing, it stressed that TILA is imbued with a public pur-

pose with individuals and their attorneys serving as

private attorneys-general. The specific grant of the right

to bring class action litigation is part of enforcing that

public purpose. If creditors were allowed to bypass the

class action device through the use of arbitration clauses,

congressional attempt would be stymied.

“Before Gilmer, courts had unanimously found that any

waiver, including a knowing waiver, of statutory rights

was precluded. In Gilmer, the Court established the base-

line test that ‘so long as the prospective litigant effec-

22

tively may vindicate [his or her] statutory cause of action

in the arbitral forum, the statute will continue to serve

both its remedial and deterrent functions.’” Hooters of

America, 39 F.Supp. 2d 582, 616 (D.S.C. 1998), quoting

Gilmer, 500 U.S. at 28. Recognizing this concept, the

Court of Appeals in Tran v. Tran, 54 F.3d 115 (2d Cir.

1995), held that statutory rights under the Fair Labor

Standards Act could not be made the subject of binding

arbitration. This decision affirms the validity of Brooklyn

Savings Bank v. O’Neil, 324 U.S. 697 (1945), which the

court relied upon in Parker v. DeKalb Chrysler-Plymouth,

673 F.2d 1178 (11th Cir. 1982), to hold that TILA rights

were not the subject of a general release. Further, even

the individual suit under Truth-in-Lending has public

dimensions. See Buford v. American Finance Co., 333

F. Supp. 1243, 1248 (N.D.Ga. 1971). Additional public-

related benefits are provided by the stare decisis effect

successful litigation may have entitling others to statu-

torily provided relief. . . ” Id.; Accord, Rodash v. AIB

Mortgage Co., 16 F.3d 1142 (11th Cir. 1994) (“Congress

intended the statute to create a system of private attor-

neys general to aid its enforcement; thus, to further its

remedial purpose”). Reported decisions are important to

the stated purpose of having standardized disclosures on

a nationwide basis. No matter where you are in the

country, you should get the same form disclosures. This

requires reported decisions with reasons spelled out and

subject to appellate review. The Court found reported

decisions expendable under ERISA, see Pritzker, 7 F.3d

at 1119, but under ERISA every plan can be different.

The purpose of TILA requires uniform disclosures which

necessitates reported law.

23

In Broughton v. Cigna Healthplans of California, 21

Cal. 4th 1066, 988 P.2d 67 (Cal. 1999), the court would

not enforce an arbitration clause because it impeded the

ability of plaintiff to “[play] in the role of a bona fide

private attorney general” as intended by the California

legislature in the California Legal Remedies Act (CRLA).

Broughton, 988 P.2d at 76-77. Similarly, here, arbitration

would impede the public benefit Congress intended by

encouraging plaintiffs to bring class action suits as

private attorney generals to enforce uniform compliance

with TILA. The court in Broughton distinguished its

holding from the outcome in Mitsubishi Motors, which

held that the Sherman Act’s treble damages provision

only had an “incidental” public benefit. In Broughton, the

intent to create “private attorney generals” and ability to

obtain injunctive relief had a more tangible public benefit

and was clear expression of legislative intent that suits

brought under the CRLA were to have a public benefit

rather than only compensate the plaintiff individually.

Similarly here, by encouraging plaintiffs to bring class

actions for statutory damages, Congress intended for

TILA to have a more tangible public benefit rather than

merely compensate the individual. Given this legislative

intent, it cannot be maintained that putting Johnson’s

claim in a forum that prevents the bringing of a class

action does not defeat the legislature’s intent. The con-

flict between the FAA and TILA need not be express but

can be, and is, deducible from the text and legislative

history.

24

B. TILA’s Private Attorney Generals.

Certainly, class actions are part of TILA’s statutory

scheme of enforcement by “private attorney generals.”

Compelling a claim alleged as a class to be arbitrated as

an individual claim is disruptive with that scheme.

TILA’s statutory mandate of disclosure of material

terms is intended to benefit all consumers and compliant

creditors, not just the individual claimant. Parker uv.

DeKalb Chrysler Plymouth, 673 F.2d 1178, 1180 (11th

Cir. 1982). The general statutory scheme envisions in-

dividual consumers acting as “private attorneys general.”

Parker, 673 F.2d at 1181. Congress intended to create a

private attorney general class action right for the express

purpose of “insur[ing] nationwide adherence to uniform

disclosures” and providing a vehicle by which courts can

“assess a meaningful penalty upon a creditor to induce

compliance with” TILA’s requirements. S. Rep. 93-278,

14-15. Enforcing arbitration here would defy congressio-

nal intent, and render TILA useless.

This congressional purpose has been recognized by

every court to have considered the history of the act. An

early case stating the purpose of TILA was Ratner v.

Chemical Bank, 329 F. Supp. 270 (S.D.N.Y. 1971) where

the Court held that “The scheme of the statute, as both

sides agree (emphasis added), is to create a species of

‘private attorney general’ to participate prominently in

enforcement . .. Congress made clear its broader scheme,

and broader system of reimbursement, for private en-

forcement. It invited people like the present plaintiff,

whether they were themselves deceived or not, to sue in

the public interest. Following familiar precedents, it en-

couraged such actions by providing, in addition to the

er a

25

incentive of public service, costs and a reasonable attor-

ney’s fee above the minimum recovery of $100.” Id.

In James v. Home Construction Co., 689 F.2d 1357

(11th Cir. 1982), the Court agreed with Ratner, and

stated that “One of the congressional goals underlying

TILA was the creation of a system of private attorneys

general who could effectively enforce the Act without

government intervention.” Sosa v. Fite, 498 F.2d 114, 121

(5th Cir. 1974); Bizier v. Globe Fin. Services, Inc., 654

F.2d 1, 2 (1st Cir. 1981); Thomas v. Myers-Dickson Fur-

niture Co., 479 F.2d 740, 748 (5th Cir. 1973).

In Thomas v. Myers-Dickson Furniture Co., 479 F.2d

740 (5th Cir. 1973) the Court stated that “Section 1640

is intended to allow aggrieved consumers to participate

in policing the Act. The domain of consumer credit with

its allied commercial practices is no longer in the laissez

faire era of caveat emptor. That doctrine is increasingly

relegated to its proper place as a historical relic without

modern application. The regulatory scheme forcefully

expounds an emerging ethic of ‘caveat vendor,’ and we

will not strain to avoid giving effect to the Federal Con-

sumer Credit Protection Act.” Id.; see also Broughton v.

Cigna Healthplans of California, supra at 18.

IV. PROLIFERATION OF ARBITRATION CLAUSES

IN CONSUMER LOANS INSULATES CREDITORS

FROM CLASS ACTION PENALTY

The penalty in a class action—the lesser of 1% of a

defendant’s net worth or $500,000—is certainly a sub-

stantive statutory remedy. The class members need not

sustain actual damages. Congress intended class action

26

awards to operate as a fine and enforce nationwide

compliance with uniform disclosures. The only route to

imposing this fine is via a class action. While class

actions have their basis in civil procedure, Congress

clearly incorporated the device into its statutory scheme

as opposed to funding an administrative agency to en-

force compliance. In, for example, a products liability

suit, the use of a class action is procedural, no statutory

damages are available on a class wide basis. Here, Con-

gress put in place a fine to be-assessed in a class action

to enforce its requirement for uniform disclosure of credit

terms on a nationwide basis.

The proliferation of arbitration clauses in consumer

credit transaction would undermine this statutory

scheme because a class action cannot be brought in

arbitration. The clauses appear in all types of consumer

credit transactions, from credit cards to high interest

(e.g. 900%), short-term loans. See “First USA Wins

Majority of Arbitrated Cases,” The Austin American-

Statesman, March 12, 2000, at J8; Thompson uv. Illinois

Title Loans, Inc., 2000 U.S. Dist. LEXIS 232 (N.D. II.

January 6, 2000); Fastfunding the Company Inc. v. Betts,

2000 Fla. App. LEXIS 3771 (Fla. App. Ct. March 31,

2000).

By including-an arbitration clause in each of its stan-

dard form contracts with consumer borrowers, a short-

term lender that fails to disclose a security interest

properly would not have to worry about liability as to

each of it customers. It is likely only a small percentage

of customers would discover the violation and a small

percentage of those customers would actually bring suit.

Consequently, the creditor would only have to defend one

27

or two individual suits per year in arbitration and could

absorb that expense as a cost of doing business—doing

business in violation of TILA that is. Again, no govern-

mental agency is going to swoop in and shut down the

lender because Congress did not decide to fund an agency

for that purpose. Congress did decide to use the class

action device to enforce compliance.

CONCLUSION

WHEREFORE, Terry Johnson and the Illinois Con-

sumer Justice Council, Inc. respectfully request that this

Court affirm the Eleventh Circuit opinion for the reasons

stated above.

Respectfully submitted,

DANIEL A. EDELMAN

Counsel of Record

CATHLEEN M. COMBS

JAMES O. LATTURNER

JOHN M. BRODERICK

EDELMAN, COMBS & LATTURNER

120 South LaSalle Street

18 Floor

Chicago, Illinois 60603

(312) 739-4200

Attorneys for Amicus Curiae

Terry Johnson and the Illinois

Consumer Justice Council, Inc.