The Sixth Circuit Court of Appeals last week affirmed that a universal truism applies to offers you might receive from a debt collection company to consolidate your debt payments: If it sounds too good to be true, it probably is.
In Bowie v. Clear Your Debt, LLC, the court affirmed the dismissal of the plaintiff’s claims that she should not be bound by the arbitration clause that was included in the agreement she signed with a debt resolution service. Applying Ohio law to the matter, the Sixth Circuit found that the arbitration clause was enforceable. The result was that the plaintiff had to go to arbitration on its claims that Clear Your Debt, and for the court to offer some father knows best advice: “As often happens when something seems too good to be true, this arrangement was no exception.”
The plaintiff had compiled a large amount of unsecured debt and eventually sought to resolve the matter by hiring Clear Your Debt, which was supposed to resolve the debts for a fraction of the balances in exchange for a fee. Little did the plaintiff know, Clear Your Debt had such an awful reputation in the industry that some creditors refused to deal with the company. The plaintiff did not realize this until after she had paid the company more than $8,000 in fees, and after a collection suit had been filed against her because Clear Your Debt had not resolved the debts as it had promised.
The plaintiff filed a federal lawsuit alleging a number of claims against Clear Your Debt, but the issue before the appeals court was whether the plaintiff could resort to federal court in the first place. Included in the agreement the plaintiff signed with Clear Your Debt was an arbitration clause that required disputes between the parties go to an arbitrator. The plaintiff attempted to argue that the clause was unconscionable under the law of Ohio, which is where the case arose.
The court found the clause to be enforceable. The court dismissed arguments that the plaintiff, a single-mom who has an associate’s degree and is a nurse, felt pressure to sign the agreement because of the urgency of her debts and the employee who she talked to did not specifically mention the arbitration clause. The plaintiff “was capable of asking for more time to read the contract and was capable of understanding the arbitration clause had she read it. Neither her failure to read the contract, nor the employee’s failure to mention the arbitration clause, renders the contract procedurally unconscionable.”
The court also rejected her arguments that the arbitration clause could have been more clearly demarcated on the page, noting that the clause was on the top of the page and clearly labeled. Finally, the court held that the plaintiff was not in a position where she had to accept the terms of the contract offered. “She could have tried to negotiate the arbitration provision or she could have gone to another debt services company. She did neither. Instead she failed to read the contract and was later surprised to find that the contract contained an arbitration clause. The fault for not reading the contract rests with her.”
The attorneys at Dalton & Tomich have extensive experience in state and federal courts throughout the U.S with regard to the resolution of debt from the perspective of both lending institutions and individual borrowers. We will be monitoring this fast-changing area of law. If you believe you or your financial institution might have a claim involving your rights to debt payments or another contractual matter, please contact us.
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