California

California Credit Services Act of 1984,  CA CIVIL D. 3, Pt. 4, T.

Division 3. Obligations

Part 4. Obligations Arising from Particular Transactions

Title 1.6E. Credit Services

§ 1789.10. Short title

This title shall be known and may be cited as the "Credit Services Act of 1984."


§ 1789.11. Legislative findings and declarations; purposes; liberal construction


The Legislature finds and declares that:


(a) The ability to obtain and use credit has become of great importance to consumers, who have a vital interest in establishing and maintaining their credit worthiness and credit standing. As a result, consumers who have experienced credit problems may seek assistance from credit services organizations which offer to obtain credit or improve the credit standing of such consumers.


Certain advertising and business practices of some credit services organizations have worked a financial hardship upon the people of this state, often those who are of limited economic means and inexperienced in credit matters. Credit services organizations have significant impact upon the economy and well-being of this state and its people.


(b) The purposes of this title are to provide prospective buyers of services of credit services organizations with the information necessary to make an intelligent decision regarding the purchase of those services and to protect the public from unfair or deceptive advertising and business practices.


(c) This title shall be construed liberally to achieve these purposes.


§ 1789.12. Definitions


As used in this title:


(a) "Credit services organization" means a person who, with respect to the extension of credit by others, sells, provides, or performs, or represents that he or she can or will sell, provide or perform, any of the following services, in return for the payment of money or other valuable consideration:


(1) Improving a buyer's credit record, history, or rating.


(2) Obtaining a loan or other extension of credit for a buyer.


(3) Providing advice or assistance to a buyer with regard to either paragraph (1) or (2).


(b) "Credit services organization" does not include any of the following:


(1) Any person holding a license to make loans or extensions of credit pursuant to the laws of this state or the United States who is subject to regulation and supervision with respect to the making of those loans or extensions of credit by an official or agency of this state or the United States and whose business is the making of those loans or extensions of credit.


(2) Any bank, as defined in Section 102 of the Financial Code, or any savings institution, as specified in subdivision (a) or (b) of Section 5102 of the Financial Code, whose deposits or accounts are eligible for insurance by the Federal Deposit Insurance Corporation.


(3) Any person licensed as a prorater by the Department of Corporations when the person is acting within the course and scope of that license.


(4) Any person licensed as a real estate broker performing an act for which a real estate license is required under the Real Estate Law (Pt. 1 (commencing with Sec. 10000), Div. 4, B. & P.C.) and who is acting within the course and scope of that license.


(5) Any attorney licensed to practice law in this state, where the attorney renders services within the course and scope of the practice of law, unless the attorney is an employee of, or otherwise directly affiliated with, a credit services organization.


(6) Any broker-dealer registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission where the broker-dealer is acting within the course and scope of the regulation.


(7) Any nonprofit organization described in Section 501(c)(3) of the Internal Revenue Code that, according to a final ruling or determination by the Internal Revenue Service, is both of the following:


(A) Exempt from taxation under Section 501(a) of the Internal Revenue Code.


(B) Not a private foundation as defined in Section 509 of the Internal Revenue Code.


An advance ruling or determination of tax-exempt or foundation status by the Internal Revenue Service does not meet the requirements of this paragraph.


(c) "Buyer" means any natural person who is solicited to purchase or who purchases the services of a credit services organization.


(d) "Extension of credit" means the right to defer payment of debt or to incur debt and defer its payment, offered or granted primarily for personal, family, or household purposes.


(e) "Consumer credit reporting agency" means a consumer credit reporting agency subject to the Consumer Credit Reporting Agencies Act, Title 1.6 (commencing with Section 1785.1).


(f) "Person" includes an individual, corporation, partnership, joint venture, or any business entity.


§ 1789.13. Credit services organizations; prohibited activities


A credit services organization, and its salespersons, agents, representatives, and independent contractors who sell or attempt to sell the services of a credit services organization, shall not do any of the following:


(a) Charge or receive any money or other valuable consideration prior to full and complete performance of the services the credit services organization has agreed to perform for or on behalf of the buyer.


(b) Fail to perform the agreed services within six months following the date the buyer signs the contract for those services.


(c) Charge or receive any money or other valuable consideration for referral of the buyer to a retail seller or other credit grantor who will or may extend credit to the buyer, if the credit which is or will be extended to the buyer (1) is upon substantially the same terms as those available to the general public or (2) is upon substantially the same terms that would have been extended to the buyer without the assistance of the credit services organization.


(d) Make, or counsel or advise any buyer to make, any statement which is untrue or misleading and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading, to a consumer credit reporting agency or to any person who has extended credit to a buyer or to whom a buyer is applying for an extension of credit, such as statements concerning a buyer's identification, home address, creditworthiness, credit standing, or credit capacity.


(e) Remove, or assist or advise the buyer to remove, adverse information from the buyer's credit record which is accurate and not obsolete.


(f) Create, or assist or advise the buyer to create, a new credit record by using a different name, address, social security number, or employee identification number.


(g) Make or use any untrue or misleading representations in the offer or sale of the services of a credit services organization, including either of the following:


(1) Guaranteeing or otherwise stating that the organization is able to delete an adverse credit history, unless the representation clearly discloses, in a manner equally as conspicuous as the guarantee, that this can be done only if the credit history is inaccurate or obsolete and is not claimed to be accurate by the creditor who submitted the information.


(2) Guaranteeing or otherwise stating that the organization is able to obtain an extension of credit, regardless of the buyer's previous credit problems or credit history, unless the representation clearly discloses, in a manner equally as conspicuous as the guarantee, the eligibility requirements for obtaining an extension of credit.


(h) Engage, directly or indirectly, in any act, practice, or course of business which operates or would operate as a fraud or deception upon any person in connection with the offer or sale of the services of a credit services organization.


(i) Advertise or cause to be advertised, in any manner, the services of the credit services organization, without being registered with the Department of Justice.


(j) Fail to maintain an agent for service of process in this state.


(k) Transfer or assign its certificate of registration.


(l) Submit a buyer's dispute to a consumer credit reporting agency without the buyer's knowledge.


(m) Use a consumer credit reporting agency's telephone system or toll-free telephone number to represent the caller as the buyer in submitting a dispute of a buyer or requesting disclosure without prior authorization of the buyer.


§ 1789.14. Information statement; necessity and time of delivery to buyer; acknowledgement of delivery; retention on file


Prior to the execution of a contract or agreement between the buyer and a credit services organization, the credit services organization shall provide the buyer a statement in writing, containing all the information required by Section 1789.15. The credit services organization shall maintain on file or microfilm for a period of two years an exact copy of the statement, personally signed by the buyer, acknowledging receipt of a copy of the statement.


§ 1789.15. Information statement; contents


The information statement shall include all of the following:


(a) A complete and detailed description of the services to be performed by the credit services organization for or on behalf of the buyer and the total amount the buyer will have to pay, or become obligated to pay, for the services.

(b) The buyer's right to proceed against the bond under the circumstances and in the manner set forth in Section 1789.18.


(c) The name and address of the surety company which issued the bond .


(d) A complete and accurate statement of the availability of nonprofit credit counseling services.


The information statement shall be printed in at least 10-point boldface type and shall include the following statement or any substantially equivalent alternative that is approved by the Department of Justice:

"CONSUMER CREDIT FILE RIGHTS UNDER STATE AND FEDERAL LAW

You have a right to obtain a copy of your credit file from a consumer credit reporting agency. You may be charged a reasonable fee not exceeding eight dollars ($8). There is no fee, however, if you have been turned down for credit, employment, insurance, or a rental dwelling because of information in your credit report within the preceding 60 days. The consumer credit reporting agency must provide someone to help you interpret the information in your credit file. You have a right to dispute inaccurate information by contacting the consumer credit reporting agency directly. However, neither you nor any credit repair company or credit services organization has the right to have accurate, current, and verifiable information removed from your credit report. Under the Federal Fair Credit Reporting Act, the consumer credit reporting agency must remove accurate, negative information from your report only if it is over seven years old. Bankruptcy information can be reported for 10 years. If you have notified a credit reporting agency in writing that you dispute the accuracy of information in your credit file, the consumer credit reporting agency must then reinvestigate and modify or remove inaccurate information. The consumer credit reporting agency may not charge a fee for this service. Any pertinent information and copies of all documents you have concerning an error should be given to the consumer credit reporting agency.


If reinvestigation does not resolve the dispute to your satisfaction, you may send a brief statement to the consumer credit reporting agency to keep in your file, explaining why you think the record is inaccurate. The consumer credit reporting agency must include your statement about disputed information in any report it issues about you.


You have a right to cancel the contract for any reason within five working days from the date you signed it. If for any reason you do cancel the contract during this time, you do not owe any money.


You have a right to sue a credit services organization if it misleads you."


§ 1789.16. Contracts; requirements; contents


(a) A credit services organization shall not provide any service to a buyer except pursuant to a written contract that complies with this section. Every contract between the buyer and a credit services organization for the purchase of the services of the credit services organization shall be in writing, shall be dated, signed by the buyer, and include all of the following:


(1) A conspicuous statement in size equal to at least 10-point boldface type, in immediate proximity to the space reserved for the signature of the buyer, as follows: "You, the buyer, may cancel this contract at any time prior to midnight of the fifth day after the date of the transaction. See the attached notice of cancellation form for an explanation of this right."


(2) The terms and conditions of payment, including the total of all payments to be made by the buyer, whether to the credit services organization or to some other person.


(3) A full and detailed description of the services to be performed by the credit services organization for the buyer, including all guarantees and all promises of full or partial refunds, and the estimated date by which the services are to be performed, or the estimated length of time for performing the services not to exceed six months or a shorter period consistent with the purposes of this title as may be prescribed by the Department of Justice.


(4) The credit services organization's principal business address and the name and address of its agent, other than the Secretary of State, in the State of California , authorized to receive service of process.


(b) The contract shall be accompanied by a completed form in duplicate, captioned "Notice of Cancellation," which shall be attached to the contract and easily detachable, and which shall contain in type of at least 10-point the following statement written in the same language as used in the contract:

"Notice of Cancellation"

"You may cancel this contract, without any penalty or obligation, within five days from the date the contract is signed.


"If you cancel, any payment made by you under this contract must be returned within 15 days following receipt by the seller of your cancellation notice.


    "To cancel this contract, mail or deliver a signed and dated copy of this
  cancellation notice, or any other written notice, to
_________________________________________________________________________    at
                            (name of seller)
_______________________________________________________________________________
       (address of seller)                        (place of business)
not later than midnight ________.
                         (date)
"I hereby cancel this transaction."
_________________________________       _______________________________________
             (date)                             (purchaser's signature)


A copy of the fully completed contract and all other documents the credit services organization requires the buyer to sign shall be given to the buyer at the time they are signed.


§ 1789.17. Seller's breach of contract or obligation; violation of title


The seller's breach of a contract under this title or of any obligation arising therefrom shall constitute a violation of this title.


§ 1789.18. Surety bonds; compliance requirements; filing of copy


No credit services organization shall conduct business in this state unless the credit services organization has first obtained a surety bond in the principal amount of one hundred thousand dollars ($100,000) issued by an admitted surety and the bond complies with all of the following:





(a) The bond shall be in favor of the State of California for the benefit of any person who is damaged by any violation of this title. The bond shall also be in favor of any individual damaged by those practices.


(b) Any person claiming against the bond for a violation of this title may maintain an action at law against the credit services organization and against the surety. The surety shall be liable only for actual damages and not the punitive damages permitted under Section 1789.21. The aggregate liability of the surety to all persons damaged by a credit services organization's violation of this title shall in no event exceed the amount of the bond.





(c) The bond shall be maintained for two years following the date on which the credit services organization ceases to conduct business in this state.


A copy of the bond shall be filed with the Secretary of State.


§ 1789.19. Waiver of rights by buyer; prohibition; attempt to obtain; violation of title; burden of proof on exemption or exception from definition


(a) Any waiver by a buyer of the provisions of this title shall be deemed contrary to public policy and shall be void and unenforceable. Any attempt by a credit services organization to have a buyer waive rights given by this title shall constitute a violation of this title.


(b) In any proceeding involving this title, the burden of proving an exemption or an exception from a definition is upon the person claiming it.


§ 1789.20. Violations; misdemeanor; injunction; prosecutor


(a) Any person who violates any provision of this title is guilty of a misdemeanor. Any superior court of this state shall have jurisdiction in equity to restrain and enjoin the violation of any provision of this title.


The duty to institute actions for violation of this title, including equity proceedings to restrain and enjoin such a violation, is hereby vested in the Attorney General, district attorneys, and city attorneys. The Attorney General, any district attorney, or any city attorney may prosecute misdemeanor actions or institute equity proceedings, or both.


This section shall not be deemed to prohibit the enforcement by any person of any right provided by this or any other law.


(b) The misdemeanor provision of this section does not apply to a seller's breach of a contract subject to this title.


§ 1789.21. Actions for recovery of damages or injunctive relief


(a) Any buyer injured by a violation of this title or by the credit services organization's breach of a contract subject to this title may bring any action for recovery of damages, or for injunctive relief, or both. Judgment shall be entered for actual damages, but in no case less than the amount paid by the buyer to the credit services organization, plus reasonable attorney's fees and costs. An award, if the trial court deems it proper, may be entered for punitive damages.


(b) Any person, including, but not limited to, a consumer credit reporting agency, as defined in subdivision (d) of Section 1785.3, and any consumer of, or user of, a consumer credit report under the Consumer Credit Reporting Agencies Act (Title 1.6 (commencing with Section 1785.1)), and any furnisher of credit information under the Consumer Credit Reporting Agencies Act, may bring an action for the recovery of damages or for injunctive relief, or both, for a violation of this title. Any person bringing such an action who prevails in the action shall be entitled to reasonable attorney's fees and costs.


§ 1789.22. Application of other laws; remedies as additional


The provisions of this title are not exclusive and do not relieve the parties or the contracts subject thereto from compliance with any other applicable provision of law.


The remedies provided in this title for violation of any section of this title shall be in addition to any other procedures or remedies for any violation or conduct provided for in any other law.


§ 1789.23. Severability


If any provision of this title or if any application thereof to any person or circumstance is held invalid, the remainder of the title and the application of the provision to other persons and circumstances shall not be affected thereby.


§ 1789.24. Claims against deposits in lieu of bonds; establishment; approval; 240-day period; payment; approval of claims after 240-day period; deposits not subject to attachment, garnishment, or execution


(a) When a deposit has been made in lieu of a bond pursuant to Section 995.710 of the Code of Civil Procedure, the person asserting a claim against the deposit shall, in lieu of proceeding under Section 996.430 of the Code of Civil Procedure, establish the claim by furnishing evidence to the Secretary of State of a money judgment entered by a court, together with evidence that the claimant is a person described in subdivision (b) of Section 1789.18.


(b) When a person has established the claim with the Secretary of State, the Secretary of State shall review and approve the claim and enter the date of approval thereon. The claim shall be designated an "approved claim."


(c) When the first claim against a particular deposit has been approved, it shall not be paid until the expiration of a period of 240 days after the date of its approval by the Secretary of State. Subsequent claims that are approved by the Secretary of State within the same 240-day period shall similarly not be paid until the expiration of the 240-day period. Upon the expiration of the 240-day period, the Secretary of State shall pay all approved claims from that 240-day period in full unless the deposit is insufficient, in which case each approved claim shall be paid a pro rata share of the deposit.


(d) When the Secretary of State approves the first claim against a particular deposit after the expiration of a 240-day period, the date of approval of that claim shall begin a new 240-day period to which subdivision (c) shall apply with respect to any amount remaining in the deposit.


(e) After a deposit is exhausted, no further claims shall be paid by the Secretary of State. Claimants who have had their claims paid in full or in part pursuant to subdivision (c) or (d) shall not be required to return funds received from the deposit for the benefit of other claimants.


(f) When a deposit has been made in lieu of a bond, as specified in subdivision (a), the amount of the deposit shall not be subject to attachment, garnishment, or execution with respect to an action or judgment against the credit services organization, other than as to an amount as no longer needed or required for the purpose of this title which would otherwise be returned to the credit services organization by the Secretary of State.


(g) The Secretary of State shall retain a cash deposit for two years from the date the Secretary of State receives written notification from the assignor of the deposit that the assignor has ceased to engage in the business of a credit services organization or has filed a bond pursuant to Section 1789.18, provided that there are no outstanding claims against the deposit. The written notice shall include all of the following: (1) name, address, and telephone number of the assignor; (2) name, address, and telephone number of the bank at which the deposit is located; (3) account number of the deposit; and (4) a statement whether the assignor is ceasing to engage in the business of a credit services organization or has filed a bond with the Secretary of State. The Secretary of State shall forward an acknowledgment of receipt of the written notice to the assignor at the address indicated therein, specifying the date of receipt of the written notice and anticipated date of release of the deposit.


(h) This section shall apply to all deposits retained by the Secretary of State.


(i) A judge of a superior court may order the return of the deposit prior to the expiration of two years upon evidence satisfactory to the judge that there are no outstanding claims against the deposit or order the Secretary of State to retain the deposit for a sufficient period beyond the two years specified in subdivision (g) to resolve outstanding claims against the deposit account.


§ 1789.25. Registration application; bond; fee; contents; investigation; notification of change in information; expiration of certificate of registration


(a) Every credit services organization shall file a registration application with, and receive a certificate of registration from, the Department of Justice before conducting business in this state. The Department of Justice shall not issue a certificate of registration until the bond required by Section 1789.18 has been filed with the office of the Secretary of State. The application shall be accompanied by a registration fee of one hundred dollars ($100). The registration application shall contain all of the following information:


(1) The name and address where business is actually conducted of the credit services organization.


(2) The names, addresses, and driver's license numbers of any and all persons who directly or indirectly own or control 10 percent or more of the outstanding shares of stock in the credit services organization.


(3) Either of the following:


(A) A full and complete disclosure of any litigation commenced against the credit services organization or any resolved or unresolved complaint that relates to the operation of the credit services organization and that is filed with the Attorney General or any other governmental authority of this state, any other state, or the federal government. With respect to each resolved complaint identified by the disclosure, the disclosure shall include a brief description of the resolution.


(B) An acknowledged declaration under penalty of perjury stating that no litigation has been commenced and no unresolved complaint relating to the operation of the organization has been filed with the Attorney General or any other governmental authority of this state, any other state, or the federal government.


(4) Other information that the Department of Justice requires, either at the time of application or thereafter.


(b) The Department of Justice may conduct an investigation to verify the accuracy of the registration application. If the application involves investigation outside this state, the applicant credit services organization may be required by the Department of Justice to advance sufficient funds to pay the actual expenses of the investigation. Any nonresident applying for registration under this section shall designate and maintain a resident of this state as the applicant's agent for the purpose of receipt of service of process.


(c) Each credit services organization shall notify the Department of Justice in writing within 30 days after the date of a change in the information required by subdivision (a), except that 30 days' advance notice and approval by the Department of Justice shall be required before changing the corporate name or address, or persons owning more than 10 percent of the shares of stock in the organization. Each credit services organization registering under this section may use no more than one fictitious or trade name and shall maintain a copy of the registration application in its files. The organization shall allow a buyer to inspect the registration application upon request.


(d) A certificate of registration issued pursuant to this section shall expire annually on the last day of December but may be renewed by filing a renewal application accompanied by a fee not to exceed the Department of Justice's costs of administration.


(e) The credit services organization shall attach to the registration statement a copy of the contract or contracts which the credit services organization intends to execute with its customers and a copy of the required bond.


§ 1789.26. Enforcement; filing fees


(a) The Secretary of State shall enforce the provisions of this title that govern the filing and maintenance of bonds and deposits in lieu of bonds.


(b) The Secretary of State shall charge and collect a filing fee not to exceed the cost of filing the bond or the deposit in lieu of a bond pursuant to Section 995.710 of the Code of Civil Procedure.
Law Review Construing the Statute

Christine L. Regan, Consumer Protection; consumer credit--credit services organizations, 24 Pacific L. J., 708 (Jan. 1993).

Copyright © 1993 by the McGeorge School of Law, University of the Pacific;

Christine L. Regan

Civil Code § 1789.25 (new); §§ 1785.17, 1789.12, 1789.13,
AB 2999 (Peace); 1992 Stat. Ch. 651

Existing law prohibits credit services organizations [FN1] from (1) receiving payment before completing services for a buyer, [FN2] (2) receiving payment for referring the buyer to a retail seller or other credit grantor who may extend credit, (3) advising a buyer to make a statement which is known to be false or misleading to a credit reporting agency or to a person whom may extend credit to the buyer, [FN3] or (4) using any false or misleading representations while selling the services of a credit services organization. [FN4] Chapter 651 revises the definition of "credit services organization" to include those attorneys employed by or directly affiliated with a credit services organization. [FN5] In addition, Chapter 651 prohibits credit services organizations from the following: (1) Failing to perform services within ninety days following the date the buyer signs the contract; [FN6] (2) removing adverse credit information which is accurate and not obsolete; [FN7] (3) assisting the buyer to create a new credit record by using a different name, address, social security number, or employee identification; [FN8] (4) submitting a buyer's dispute to a consumer credit reporting agency without informing the buyer; [FN9] and (5) calling a consumer credit reporting agency's on the telephone and representing the caller as the buyer when submitting a dispute or requesting disclosure without the buyer's prior authorization. [FN10] Chapter 651 *710also prohibits a credit services organization from engaging in any fraudulent or deceptive act in connection with selling the services of the organization. [FN11] Under Chapter 651, prohibited practices would also apply to independent contractors of a credit services organization. [FN12]

Existing law authorizes a buyer injured by one of these violations or from a breach of contract by the credit services organization to bring an action to recover damages. [FN13] Chapter 651 provides that an injured buyer may bring an action for recovery of damages, injuntive relief, or both. [FN14] Chapter 651 also requires all credit services organizations to register with the Department of Justice, and specifies the information required [FN15] on the registration application. [FN16] The Department of Justice may verify the accuracy of the *711information provided in the registration application. [FN17] Under Chapter 651, a credit services organization must notify the Department of Justice in writing of any changes in the information required by the application within thirty days of the change. [FN18]

Under existing law, a consumer credit reporting agency [FN19] must provide the consumer with a free consumer credit report if requested by the consumer within thirty days of being notified of adverse action that may have been affected by the consumer's credit rating. [FN20] Chapter 651 allows the consumer sixty days to make this request. [FN21]

[FN1]. See Cal.Civ. Code § 1789.12(a), (e) (amended by Chapter 651) (defining credit services organization as an individual, corporation, partnership, joint venture, or any business entity who, with respect to the extension of credit by others, represents that he or she will provide any of the following services in return for payment: (1) Improving a buyer's credit record, history, or rating; (2) obtaining a loan or other extension of credit for a buyer; or (3) providing advice or assistance to a buyer with regard to either of the services listed above); id. § 1789.13 (amended by Chapter 651) (providing that the credit services organization's salespersons, agents, representatives, and independent contractors are also prohibited from the practices in § 1789.13). See generally James P. Nehf, a Legislative Framework for Reducing Fraud in the Credit Repair Industry,70 N.C.L.Rev. 781, 781 (1992) (stating that in recent years this new industry which promises to improve a person's credit rating for a fee has grown, and that instances of fraud in the credit repair industry are widespread, causing a rising tide of consumer complaints); id. at 781-82 (reporting that the use of credit by consumers has increased dramatically, and that outstanding credit card debt on Visa and MasterCard accounts alone increased from $20 billion in 1981 to $154 billion in

[FN2]. See Cal.Civ. Code § 1789.13(c) (amended by Chapter 651) (stating that payment for such a referral is prohibited if the credit which is extended to the buyer is on substantially the same terms available to the public, or the credit extended is on the same terms that the buyer would have received without the help of the credit services organization).

[FN3]. See id. § 1789.13(d) (amended by chapter 651) (listing the type of statements which are prohibited as those concerning a buyer's identification, home address, credit worthiness, credit standing, or credit capacity).

[FN4]. Id. § 1789.13(a), (c), (d),(g) (amended by Chapter 651).

[FN5]. Id. § 1789.12(a)(6) (amended by Chapter 651).

[FN6]. Id. § 1789.13(b) (amended by Chapter 651).

[FN7]. Id. § 1789.13(e) (amended by Chapter 651).

[FN8]. Id. § 1789.13(f) (amended by Chapter 651).

[FN9]. Id. § 1789.13(l) (amended by Chapter 651).

[FN10]. Id. § 1789.13(m) (amended by chapter 651); see id. § 1789.13(i)-(k) (amended by Chapter 651) (prohibiting advertising the services of the credit services organization without registering with the Department of Justice, failing to maintain an agent for service of process in California, and transferring or assigning the certificate of registration); id. § 1789.12(d) (amended by Chapter 651) (defining consumer credit reporting agency). See generally Nehf, supra note 1, at 804 (stating that consumers can benefit from legislation which protects the consumer from fraud by credit repair organizations and also allows legitimate credit services to be performed for compensation). Laws of other states also prohibit the receiving compensation for referring customers to a retail seller who may extend credit on the same terms as the general public, and using misleading statements when promoting credit services, or both. See, e.g., Ariz.Rev.Stat.Ann. § 44- 1703(2)-(4) (Supp.1991); Ark. Code Ann. § 4-91-106(2)-(3) (Michie Supp.1991); Colo.Rev.Stat. § 12-14.5-104(1)(b)(c) (West 1991); D.C. Code Ann. § 28-4603(2)-(4) (1991); Haw.Rev.Stat. § 481B-12(a)(1)- (3) (Supp.1991); Ill.Ann.Stat. ch. 121 1/2, para. 2105(2)-(4) (Smith-Hurd Supp.1992); Ind. Code Ann. § 24-5-15-5(2)-(4) (West Supp.1992); La.Rev.Stat.Ann. § 9:3573.3(2)-(4) (West 1991); Nev.Rev.Stat. § 598.282(3)-(4) (1991); N.Y.Gen.Bus. Law § 458-h(1)-(2) (McKinney Supp.1992); Okla.Stat.Ann. tit. 24, § 133(2)-(4) (West Supp.1992); Tenn. Code Ann. § 47-18-1003(2)-(4) (1988); Tex.Bus. & Com. Code Ann. § 18.03(2)- (4) (West Supp.1992); Va. Code Ann. § 59.1-335.5(2)-(4) (Michie 1992); W.Va. Code § 46A-6C-3(2)-(5) (Supp.1992); cf. Ga. Code Ann. § 16-9- 59(b)(c) (Michie 1992) (prohibiting credit repair services in the state).

[FN11]. Cal.Civ. Code § 1789.13(h) (amended by Chapter 651); see id. § 1789.13(g)(1)-(2) (amended by Chapter 651 (prohibiting misleading representations which include stating that the organization can delete an adverse credit history without clearly stating that this can only be done if the credit history is inaccurate or obsolete, or stating that the organization can obtain an extension of credit despite the buyers credit problems without clearly disclosing the eligibility requirements for obtaining an extension of credit).

[FN12]. Id. § 1789.13 (amended by Chapter 651).

[FN13]. Id. § 1789.21 (amended by Chapter 651).

[FN14]. Id. ; see id. (stating that the judgment for actual damages should in no case be less than the amount paid by the buyer to the credit services organization, plus reasonable attorney's fees and costs; punitive damages may also be awarded by the trial court).

[FN15]. See id. § 1789.25(a)(1)-(3) (enacted by Chapter 651) (stating the registration application must contain: (1) The name and business address of the credit services organization; (2) the names, addresses, and driver's license numbers of anyone who owns or controls at least ten percent stock in the organization; and (3) either a full and complete disclosure of any litigation or filed complaints that relate to the operation of the organization, or an acknowledged declaration under penalty of perjury that no such litigation or complaint exists).

[FN16]. Id. § 1789.25(a) (enacted by Chapter 651); see id. (stating that the Department of Justice will not issue a registration certificate until the bond required by § 1789.18 has been filed with the office of the Secretary of State); id. § 1789.18 (amended by Chapter 651) (stating that a credit services organization may not conduct business in California unless it first obtains a surety bond for $100,000, and listing the requirements for that bond); see also id. § 1789.25 (d) (enacted by Chapter 651) (stating that the registration certificate will expire annually on the last day of December, but may be renewed by filing a renewal application). Laws of other states also require some type of registration; see e.g., Idaho Code § 26-2223 (1990); Okla.Stat.Ann. tit. 24 § 141 (West Supp.1992); W.Va. Code § 46A-6C-5 (1992).

[FN17]. Cal.Civ. Code § 1789.25(b) (enacted by Chapter 651). If the application requires investigation outside California , the credit services organization may be required to advance funds to pay the actual expenses. Id. A nonresident applying for registration must designate a resident in California as the applicant's agent for service of process. Id.

[FN18]. Id. § 1789.25(c) (enacted by Chapter 651).

[FN19]. See id. § 1789.12(d) (amended by Chapter 651) (defining consumer credit reporting agency).

[FN20]. Id. § 1785.17(a) (amended By Chapter 651).

[FN21]. Id.; see 15 U.S.C. § 1681j (1982) (requiring within 30 days the free disclosure of the report only from the bureau whose report was used to deny credit, employment, or insurance); Lucinda A. Low, Comment, Preemption of State Credit Reporting Legislation: Toward Validation of State Authority, 24 UCLA L.Rev. 83, 118 (1977) (stating in general, the California provisions are more detailed and are often a more stringent handling of matters also regulated by the Fair Credit Reporting Act); id. at 99-107 (stating that States are authorized to provided greater consumer protection than the minimum standards imposed by the fair Credit Reporting Act).

Case Law

I identified only two significant cases construing the act. 

In Mitchell v. American Fair Credit Ass'n, Inc., 99 Cal.App.4th 1345, 122 Cal.Rptr.2d 193 (Cal. App. 1 Dist.,2002), the court ruled that a credit services organization could not amend its contract with a customer through a mailing indicating that continue membership was acceptance of new terms.  The Act prohibits such a practice by requiring that every contract for credit services be in writing and signed by the client.  This was true even though the provision added was for arbitration and the public policy embodied in the Federal Arbitration Act normally would favor construing the agreement in favor of arbitration.  The court ruled that the clients were not bound by the subsequently added arbitration provision.

In Slack v. Fair Isaac Corp., 390 F.Supp.2d 906 (N.D. Cal. , 2005) the court emphasized that the plain language and legislative intent of the Credit Service Organizations Act applies only to “untrue or misleading representations” in the form of “false promises to obtain credit, to delete adverse credit history, or to engage in similar fraudulent or misleading practices.”  Where plaintiff’s allegations did not demonstrate assertions of that character, her claims under the Act were dismissed. 

. 

Mitchell v. American Fair Credit Ass'n, Inc., 99 Cal.App.4th 1345, 122 Cal.Rptr.2d 193 (Cal.App. 1 Dist.,2002., July 10, 2002).

Mitchell v. American Fair Credit Ass'n, Inc.
99 Cal.App.4th 1345, 122 Cal.Rptr.2d 193
Cal.App. 1 Dist.,2002.
July 10, 2002 (Approx. 11 pages)

99 Cal.App.4th 1345, 122 Cal.Rptr.2d 193, 02 Cal. Daily Op. Serv. 6178, 2002 Daily Journal D.A.R. 7707

Court of Appeal, First District, Division 5, California .

Dadra MITCHELL et al., Plaintiffs and Respondents,
v.
AMERICAN FAIR CREDIT ASSOCIATION, INC., et al., Defendants and Appellants.

No. A092880.

July 10, 2002.
FN* Pursuant to California Rules of Court, rules 976(b) and 976.1, parts I and II.B. of this opinion are not certified for publication.

Review Denied Oct. 23, 2002. FN**

FN** Brown, J., dissented.

Consumer brought class action against credit services organization for violation of Credit Services Act (CSA), Consumer Legal Remedies Act, unlawful or unfair business practices, and false and misleading advertising. The Superior Court, Alameda County , No. 785811-2, Ronald M. Sabraw, J., certified the class and refused to exclude consumers who the credit services organization claimed agreed to arbitration by implication. Credit service organization appealed. The Court of Appeal, Simons, J., held that: (1) in a matter of first impression, modification of credit services agreement was ineffective without consumer's signature, and (2) Federal Arbitration Agreement did not preempt the CSA.
Affirmed in part, appeal dismissed in part.

West Headnotes

[1] KeyCite Notes

25T Alternative Dispute Resolution
   25TII Arbitration
     25TII(D) Performance, Breach, Enforcement, and Contest
       25Tk204 Remedies and Proceedings for Enforcement in General
         25Tk213 Review
           25Tk213(5) k. Scope and Standards of Review. Most Cited Cases
             (Formerly 33k23.25 Arbitration)

Where the trial court resolves no factual disputes in ruling on motion to compel arbitration, review of trial court's partial denial of the motion is de novo.

[2] KeyCite Notes

25T Alternative Dispute Resolution
   25TII Arbitration
     25TII(B) Agreements to Arbitrate
       25Tk131 Requisites and Validity
         25Tk133 Formal Requisites
           25Tk133(2) k. Writing, Signature, and Acknowledgment. Most Cited Cases
             (Formerly 33k6.1 Arbitration)

Credit Services Act (CSA) required modification to credit service contract to be signed by consumer before modification was effective, and thus, credit services organization could not compel consumers who were informed of the modification but who did not agree to the modification in a signed writing to arbitrate their claims, where modification was a material change that required consumer to resolve disputes through arbitration and waive rights to join in any class action against credit services organization, and credit services organization attempted to impose modification by implication unless the consumer signed opt-out document. West's Ann.Cal.Civ.Code § 1789.16.

[3] KeyCite Notes

361 Statutes
   361VI Construction and Operation
     361VI(A) General Rules of Construction
       361k180 Intention of Legislature
         361k181 In General
           361k181(1) k. In General. Most Cited Cases

361 Statutes KeyCite Notes
   361VI Construction and Operation
     361VI(A) General Rules of Construction
       361k180 Intention of Legislature
         361k184 k. Policy and Purpose of Act. Most Cited Cases

The Court of Appeal's primary duty in interpreting the Credit Services Act is to give effect to the legislature's intent, in a manner that advances the statute's purpose. West's Ann.Cal.Civ.Code § 1789.10 et seq.

[4] KeyCite Notes

95 Contracts
   95III Modification and Merger
     95k241 k. Alteration or Addition of Terms. Most Cited Cases

When a material term in a contract is altered or added, a new agreement between the parties has been reached.

[5] KeyCite Notes

25T Alternative Dispute Resolution
   25TII Arbitration
     25TII(A) Nature and Form of Proceeding
       25Tk117 k. Preemption. Most Cited Cases
         (Formerly 33k2.2 Arbitration)

360 States KeyCite Notes
   360I Political Status and Relations
     360I(B) Federal Supremacy; Preemption
       360k18.15 k. Particular Cases, Preemption or Supersession. Most Cited Cases

Federal Arbitration Act (FAA) did not preempt the Credit Services Act (CSA), which required any agreements for credit services to be in writing signed by consumer, and thus, modification of credit services agreement to include arbitration clause that did not include consumer's signature in violation of CSA, was unenforceable, where CSA applied to contract formation and was neutral regarding enforceability of arbitration clauses. 9 U.S.C.A. § 2; West's Ann.Cal.Civ.Code § 1789.16.

[6] KeyCite Notes

25T Alternative Dispute Resolution
   25TII Arbitration
     25TII(A) Nature and Form of Proceeding
       25Tk112 k. Contractual or Consensual Basis. Most Cited Cases
         (Formerly 33k1.2 Arbitration)

25T Alternative Dispute Resolution KeyCite Notes
   25TII Arbitration
     25TII(A) Nature and Form of Proceeding
       25Tk113 k. Arbitration Favored; Public Policy. Most Cited Cases
         (Formerly 33k1.2 Arbitration)

Though the Federal Arbitration Act incorporates a strong federal policy of enforcing arbitration agreements, the policy does not arise until an enforceable agreement is established. 9 U.S.C.A. § 1 et seq.

[7] KeyCite Notes

25T Alternative Dispute Resolution
   25TII Arbitration
     25TII(A) Nature and Form of Proceeding
       25Tk117 k. Preemption. Most Cited Cases
         (Formerly 33k2.2 Arbitration)

360 States KeyCite Notes
   360I Political Status and Relations
     360I(B) Federal Supremacy; Preemption
       360k18.15 k. Particular Cases, Preemption or Supersession. Most Cited Cases

Federal Arbitration Act does not preempt a neutral state law contract formation requirement simply because it can be applied to invalidate an arbitration agreement. 9 U.S.C.A. § 1 et seq.

**194 *1347 Mayer, Brown & Platt, Fredrick S. Levin, Los Angeles, Ronald D. Kurtz and Nicole Manna; Morrison & Foerster, Douglas L. Hendricks and Philip T. Besirof, San Francisco, for Defendants and Appellants.
Girard & Green, Daniel C. Girard, Eric H. Gibbs, San Francisco, and Martin S. Putnam, Oakland, for Plaintiffs and Respondents.

SIMONS, J.
Civ.Code, § 1789.10 et seq.) in response to certain business practices of credit services organizations. These organizations offer to obtain credit or improve the credit standing of consumers who have experienced credit problems. The CSA sought to provide consumers with information necessary to decide whether or not to purchase such services, by requiring certain disclosures and by mandating that every credit services contract be in *1348 writing and signed by the buyer. In this case, as a matter of first impression, we address a common question arising in a novel context. Consistent with the CSA, may a credit services organization modify its membership contract to require arbitration and preclude class relief by the simple expedient of notifying its members by mail that continued membership constitutes acceptance of the modification? We conclude it may not, because the CSA requires that contract modifications be signed. We further conclude that this requirement is not preempted by the Federal Arbitration Act and affirm the trial court's order denying in part the motion of defendants FN1 to compel arbitration.

FN1. Defendants appealing are American Fair Credit Association, Inc. (AFCA), United Membership Marketing Group, Ltd. (UMMG), and United Insurance Companies, Inc. (UICI).

In addition, defendants attempt to appeal from a separate order of the trial court granting class action certification and from a third order denying in part their motion to define the scope of the class. Because defendants have no right of appeal from the orders granting class certification and defining the scope of the class, we dismiss the appeals from those orders for lack of jurisdiction.

Background

In July 1997, plaintiff Dadra Mitchell filed this class action suit against defendants,**195 alleging plaintiff and the members of the class were solicited by defendants to participate in a credit repair scheme in which participants pay in excess of $500.00 to join a membership club that provides credit education materials and an unsecured VISA® credit card with a $300 credit limit. The operative complaint alleges defendants misrepresent that members of AFCA will rebuild their damaged credit ratings through use of the education materials and the unsecured VISA® card. The complaint asserts causes of action for violation of the CSA, violation of the Consumers Legal Remedies Act (Civ.Code, § 1750 et seq.), unlawful/unfair business practices (Bus. & Prof.Code, § 17200 et seq.), and false and misleading advertising (Bus. & Prof.Code, § 17500 et seq.). The complaint seeks injunctive relief, in addition to compensatory damages, restitution and attorney fees.

In January 1998, six months after Mitchell filed the present lawsuit, AFCA changed its membership rules, obligating all new members to sign a separate agreement to arbitrate as part of the membership application process. AFCA also attempted to modify the terms of its membership agreement with existing AFCA members to require the arbitration of all disputes with AFCA as a condition of continued membership in AFCA.

California residents who *1349 have entered into a membership contract with AFCA up to the present date, without prejudice to defendant seeking to narrow class membership during the course of this litigation.” On May 5, 2000, AFCA petitioned this court for a writ of mandate seeking to direct the trial court to vacate its order of class certification. This court denied AFCA's writ petition on the ground that it failed to establish the propriety of writ review.FN2

FN2. American Fair Credit Assn., Inc. v. Superior Court (May 11, 2002, A090987 [nonpub. order].

On June 30, 2000, defendants filed a motion in the trial court to compel arbitration by all persons who joined AFCA beginning in January 1998, along with all existing members who impliedly agreed to the change in their membership agreement requiring arbitration by failing to cancel their memberships. The motion excluded plaintiff Mitchell, who defendants acknowledge had ceased her membership with AFCA before AFCA implemented its arbitration provision in January 1998.

Concurrently, defendants filed a motion for an order defining the scope of the class, arguing, among other things, that the trial court should narrow the scope of the certified class to exclude all those AFCA members subject to the arbitration provision. Defendants also sought an order narrowing the class definition to exclude persons whose claims were barred under the applicable statutes of limitation, and to exclude from the class persons who did not receive the same representations about AFCA that plaintiff purportedly received.

By separate orders entered October 3, 2000, the trial court granted in part and denied in part both motions. With respect to those class members who joined AFCA after January 1, 1998, and executed signed arbitration agreements, the court severed the claims for injunctive relief from the claims for damages or restitution and granted defendants' motion to compel arbitration of the monetary claims only. However, the trial court denied defendants' motion to compel arbitration for class **196 members who received mailed notices of modification of their AFCA membership agreement “unless signed arbitration agreements were executed by such class members.” Furthermore, citing Broughton v. Cigna Healthplans (1999) 21 Cal.4th 1066, 90 Cal.Rptr.2d 334, 988 P.2d 67, the trial court denied in its entirety defendants' motion to compel arbitration for the claims for injunctive relief.

The trial court's order regarding defendants' motion to define the scope of the class was consistent with its order regarding the motion to compel arbitration. The trial court severed from the class action the monetary claims for damages and restitution of members who joined AFCA after January 1, 1998, and had executed signed arbitration agreements. Further, the court *1350 excluded from the class those persons whose claims the trial court found were barred by the applicable statutes of limitations. In all other respects, the trial court denied the motion. This Appeal followed.

Discussion

I. Appealability of Orders re Class Certification and Scope of Class FN***

FN*** See footnote *, ante.

II. The Order Partially Denying the Motion to Compel Arbitration

A. AFCA Members Who Never Signed the January 1998 Modification

[1] We consider whether the trial court correctly refused to compel arbitration for AFCA members who joined the organization before arbitration was mandatory and never signed the modification proposed by AFCA before January 25, 1998. We review the trial court's partial denial of the motion to compel arbitration de novo, since the trial court resolved no factual disputes in ruling on the motion. ( NORCAL Mutual Ins. Co. v. Newton (2000) 84 Cal.App.4th 64, 71, 100 Cal.Rptr.2d 683.)

In January 1998, AFCA sent its existing members a letter informing them that AFCA has “amended your Membership Agreement to provide for dispute resolution through arbitration.” The letter stated that it enclosed a copy of the “ARBITRATION OF DISPUTES provision” and said it would become effective on January 25, 1998. The letter encouraged the members to “read this document [the ‘Arbitration of Disputes Agreement’] very carefully as it does affect your rights to go to court, to have a jury trial, to engage in discovery or to be included as a member of any class of claimants with respect to any dispute.”

The final paragraph of the letter informed the members they had the right to reject this change in their agreement and then stated the affirmative steps that each was obliged to take in order to opt out. Members would have to write AFCA before January 25, 1998, and state that they rejected the arbitration provision. “You must give this notice in writing: it is not sufficient to telephone us.” The final sentence of the AFCA letter notified the members that, by continuing their membership beyond January 25, 1998, they would be agreeing to abide by the arbitration provision.

*1351 1. Modifications of Credit Services Agreements Must Be Signed

Defendants contend that the opt-out procedure they employed created a valid modification of the membership agreement. The membership agreement provided that “[t]his contract may be amended or modified only by an instrument in writing.” Defendants argue, and we agree, that a written agreement or instrument**197 in writing results when there is a writing containing all terms and acceptance by the party to be charged. ( E.O.C. Ord, Inc. v. Kovakovich (1988) 200 Cal.App.3d 1194, 1201, 246 Cal.Rptr. 456.) In E.O.C. Ord, Inc., the appellate court determined that a letter setting forth the terms of an attorney fee agreement sent to a client constituted an instrument in writing, for purposes of determining the length of the statute of limitations, even though the letter was never signed by the client. ( Id. at p. 1202, 246 Cal.Rptr. 456.) Further, we agree with defendants that a consumer may be held to have accepted a written modification when the consumer receives notification of it, is provided an opportunity to accept or reject it, and accepts the modification according to the instructions provided. Numerous federal cases have found an acceptance of a written modification when, as here, the consumer fails to opt out. (See, e.g., Bank One, N.A. v. Coates (S.D.Miss.2001) 125 F.Supp.2d 819, 830-834; Marsh v. First USA Bank, N.A. (N.D.Tex.2000) 103 F.Supp.2d. 909, 919.)

The contract formation requirements of the CSA, however, are determinative. FN3 Plaintiff persuaded the trial court that E.O.C. Ord, Inc. v. Kovakovich was inapposite because the CSA requires that the contract, as modified, must not only be written, but signed. We agree.

FN3. We reject defendants' argument that the requirements of the CSA do not impact codefendants UICI and UMMG because these defendants “do not meet the definition of ‘credit services organization’ set forth in Civil Code section 1789.12.” AFCA's modification of the membership agreements for this group of members is the only basis asserted by defendants to compel these plaintiffs into arbitration. To the extent AFCA's failure to comply with the CSA renders its modification of the membership agreements for this group of members unenforceable, no legal basis remains for any entity to compel plaintiffs into arbitration.

The CSA was enacted by the Legislature, in part, to protect the public from unfair or deceptive advertising and business practices employed by some credit services organizations. (Civil Code, § 1789.11, subd. (b).) Included in section 1789.11 is an express statement of legislative intent describing why it was enacted and how it should be interpreted: “(a) The ability to obtain and use credit has become of great importance to consumers, who have a vital interest in establishing and maintaining their credit worthiness and credit standing. As a result, consumers who have experienced credit problems may seek assistance from credit services organizations *1352 which offer to obtain credit or improve the credit standing of such consumers. [¶] Certain advertising and business practices of some credit services organizations have worked a financial hardship upon the people of this state, often those who are of limited economic means and inexperienced in credit matters. Credit services organizations have significant impact upon the economy and well-being of this state and its people. [¶] (b) The purposes of this title are to provide prospective buyers of services of credit services organizations with the information necessary to make an intelligent decision regarding the purchase of those services and to protect the public from unfair or deceptive advertising and business practices. [¶] (c) This title shall be construed liberally to ”

Civil Code section 1789.13 lists more than a dozen activities in which credit services organizations may not engage. The list reflects abuses enumerated in the legislative history, which motivated adoption of the CSA. (State and Consumer Services Agency, Enrolled Bill Rep. on Assem. Bill **198 No. 3654 (1983-1984 Reg. Sess.) Sept. 5, 1984, pp. 1-2 [Background].)

In Civil Code section 1789.16,FN4 the Legislature provided a multi-layered set of protections to consumers. Credit services contracts were required to be *1353 in writing and “signed by the buyer.” ( § 1789.16, subd. (a).) Each contract must include a series of specific advisements to the buyer, along with a full and detailed description of the services to be performed for the buyer and the charges for such services. ( § 1789.16, subd. (a)(1)-(4).) Further, the credit services organization is required to attach to the contract a specifically worded notice of cancellation indicating there is a five-day grace period following the date of signature during which the consumer may reconsider and cancel the contract. Finally, a copy of the fully completed contract and all other documents that the credit services organization requires the buyer to sign are to be given to the buyer at the time they are signed, to assist in that reconsideration. ( § 1789.16, subd. (b).)

FN4. Civil Code section 1789.16 provides, in pertinent part:

“(a) A credit services organization shall not provide any service to a buyer except pursuant to a written contract that complies with this section. Every contract between the buyer and a credit services organization for the purchase of the services of the credit services organization shall be in writing, shall be dated, signed by the buyer, and include all of the following:

“(1) A conspicuous statement in size equal to at least 10-point boldface type, in immediate proximity to the space reserved for the signature of the buyer, as follows: ‘You, the buyer, may cancel this contract at any time prior to midnight of the fifth day after the date of the transaction. See the attached notice of cancellation form for an explanation of this right.’

“(2) The terms and conditions of payment, including the total of all payments to be made by the buyer, whether to the credit services organization or to some other person.

“(3) A full and detailed description of the services to be performed by the credit services organization for the buyer, including all guarantees and all promises of full or partial refunds, and the estimated date by which the services are to be performed, or the estimated length of time for performing the services not to exceed six months or a shorter period consistent with the purposes of this title as may be prescribed by the Department of Justice.

“(4) The credit services organization's principal business address and the name and address of its agent, other than the Secretary of State, in the State of California , authorized to receive service of process.

“(b) The contract shall be accompanied by a completed form in duplicate, captioned ‘Notice of Cancellation,’ which shall be attached to the contract and easily detachable, and which shall contain in type of at least 10-point the following statement written in the same language as used in the contract:

‘Notice of Cancellation’

‘You may cancel this contract, without any penalty or obligation, within five days from the date the contract is signed.

‘If you cancel, any payment made by you under this contract must be returned within 15 days following receipt by the seller of your cancellation notice.

‘To cancel this contract, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, to _________________________ (name of seller) at _________________________ (address of seller) (place of business) not later than midnight _______________ (date).

‘I hereby cancel this transaction.’

____________________ (date) ____________________ (purchaser's signature)

“A copy of the fully completed contract and all other documents the credit services organization requires the buyer to sign shall be given to the buyer at the time they are signed.”

[2] [3] Our interpretation of the CSA is guided by familiar principles. Our primary duty is to give effect to the Legislature's intent, in a manner that advances the statute's purpose. ( Day v. City of Fontana (2001) 25 Cal.4th 268, 272, 105 Cal.Rptr.2d 457, 19 P.3d 1196.) Here, the Legislature has expressly set out its intent: to provide consumers with the information**199 necessary to make intelligent purchasing decisions and to protect consumers from unfair and deceptive business practices. (Civ.Code, § 1789.11, subd. (b).) To that end, it mandated that every contract between a consumer and a credit services organization be signed and contain certain disclosures. Defendants argue that we should interpret the phrase “every contract” to mean only the initial contract; they urge us to refuse to apply the CSA's contract formation requirements to modifications of credit services agreements. As an alternative, they propose that if the formation requirements do apply to contracts as modified, we should limit this application to modifications of the provisions that must be disclosed pursuant Civil Code section 1789.16, subdivisions (a)(1) through (4).

[4] We are unwilling to accept either proposed interpretation. First, when a material term in a contract is altered or added, a new agreement between the *1354 parties has been reached.FN5 It certainly would not be unreasonable for the Legislature to intend to extend the protections of the CSA to credit services agreements as modified or to utilize the phrase “every contract” to manifest that intent.

FN5. Appellants have never challenged the trial court's implicit conclusion that the modification was material. We agree with the trial court, but we need not determine that every modification of a credit services agreement adding an arbitration clause is material per se. Such a determination might be viewed as singling out arbitration for special, less favorable treatment, in violation of the Federal Arbitration Act. (Cf. J.J.'s Mae, Inc. v. H. Warshow & Sons, Inc. (1 Dept. 2000) 277 A.D.2d 128, 717 N.Y.S.2d 37.) Instead, we note that, in addition to mandating arbitration, the challenged modification precludes class relief. In the context of this case, where claims for the return of fees paid will be relatively small and the financial resources of potential plaintiffs are apt to be limited, the denial of class relief may significantly hinder a plaintiff's ability to obtain legal assistance. Modifying the agreement to preclude class relief in the specific context of this contract is a material change, independent of the arbitration requirement.

Moreover, if we were to choose the more restrictive interpretation put forward by defendants and exclude contracts as modified from the reach of the CSA, we would seriously undermine the Legislature's purpose: an unscrupulous provider of credit services could overcome the protections of this act simply by obtaining a buyer's signed assent to one set of terms for the initial purchase of credit services and later modifying any of those terms by employing an opt-out procedure similar to the one used here. (See Civ.Code, §§ 1789.11, 1789.16.) In view of the Legislature's directive that the CSA be construed liberally to achieve its purposes, we conclude that the requirements of Civil Code section 1789.16 apply to credit services agreements as modified.

At oral argument, defendants contended that this interpretation would require that the disclosures mandated by the CSA be repeated in every subsequent modification. We disagree. The statutory requirements are applied to the contract as modified, not to each modification. If the contract as modified contains the appropriate disclosures, they need not be repeated. A new signature is required, however, to encompass the additional or altered terms.

Defendants' alternative argument, that a new signature is required only if the modification affects any of the contract terms for which disclosure is required, is more congruent with the statutory goal, but is incompatible with the language of Civil Code section 1789.16, subdivision (a). The phrase “Every contract ... shall be in writing ... and include ... the following [disclosures]” can fairly be interpreted to include all contracts as modified or none of **200 them. The middle ground proposed by defendants could not be adopted without effectively rewriting the statute. This is a task we leave to *1355 the Legislature in the event it chooses to reconsider the wording of its enactment.

2. The Federal Arbitration Act Does Not Preempt the CSA

[5] Should this court interpret the CSA to require signed assent to the challenged modification, defendants contend it would be preempted by the Federal Arbitration Act (FAA) (9 U.S.C. § 1 et seq.). Again, we disagree.

The FAA was enacted to overcome the unwillingness of the courts to enforce agreements to arbitrate. As Justice Breyer has noted, this unwillingness could be traced to “ancient times” and the fight by British courts to extend their jurisdiction. When Congress passed “the Arbitration Act in 1925, it was ‘motivated, first and foremost, by a ... desire’ to change this antiarbitration rule. [Citation.] It intended courts to ‘enforce [arbitration] agreements into which parties had entered,’ [citation], and to ‘place such agreements “upon the same footing as other contracts,” ’ [citations].” ( Allied-Bruce Terminix Cos. v. Dobson (1995) 513 U.S. 265, 270-271, 115 S.Ct. 834, 130 L.Ed.2d 753 ( Allied ); see Dean Witter Reynolds Inc. v. Byrd (1985) 470 U.S. 213, 219-220, 105 S.Ct. 1238, 84 L.Ed.2d 158.) To effectuate that goal, the FAA provides, in pertinent part, “... an agreement in writing to submit to arbitration an existing controversy ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” (9 U.S.C. § 2 (hereafter section 2).)

[6] Though the FAA incorporates a strong federal policy of enforcing arbitration agreements ( Armendariz v. Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83, 96, 99 Cal.Rptr.2d 745, 6 P.3d 669), the policy does not arise until an enforceable agreement is established. “Whether there is an agreement to submit disputes to arbitration or reference does not turn on the existence of a public policy favoring [alternative dispute resolution].... That policy, whose existence we readily acknowledge, does not even come into play unless it is first determined that the Bank's customers agreed to use some form of [alternative dispute resolution] to resolve disputes.... [Citations.]” ( Badie v. Bank of America (1998) 67 Cal.App.4th 779, 790, 79 Cal.Rptr.2d 273; see Victoria v. Superior Court (1985) 40 Cal.3d 734, 739, 222 Cal.Rptr. 1, 710 P.2d 833 [“ ‘[T]he policy favoring arbitration cannot displace the necessity for a voluntary agreement to arbitrate.’ [Citations.]”].) In applying the FAA, the United States Supreme Court has made clear that “When deciding whether the parties agreed to arbitrate ..., courts generally ... should apply ordinary state-law principles that govern the formation of contracts. [Citations.]”*1356 ( First Options of Chicago, Inc. v. Kaplan (1995) 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985; see also Marcus & Millichap Real Estate Investment Brokerage Co. v. Hock Investment Co. (1998) 68 Cal.App.4th 83, 92-93, 80 Cal.Rptr.2d 147.)

In applying state law rules to determine if an agreement to arbitrate exists, we are mindful that, to the extent these rules single out arbitration agreements and impose special burdens on them, they interfere with the statutory goal of placing such agreements on an equal footing and are preempted. A review of FAA preemption decisions does not suggest that they require preemption of the CSA contract formation requirements as we have interpreted them here.

**201 Under the FAA, courts have stricken state laws which invalidate arbitration agreements per se. For example, in Southland Corp. v. Keating (1984) 465 U.S. 1, 5, 104 S.Ct. 852, 79 L.Ed.2d 1, the high court considered the California Franchise Investment Law, which had been interpreted by the California Supreme Court to require the judicial consideration of claims arising under the statute, barring arbitration agreements reached by the parties. The high court held that, so interpreted, the California statute directly conflicted with section 2 of the FAA, violating the supremacy clause. ( Id. at p. 10, 104 S.Ct. 852.) In Allied, the high court invalidated an Alabama statute “making written, predispute arbitration agreements invalid and ‘unenforceable.’ [Citation.]” ( Allied, supra, 513 U.S. at p. 269, 115 S.Ct. 834.) In Perry v. Thomas (1987) 482 U.S. 483, 490, 107 S.Ct. 2520, 96 L.Ed.2d 426, the high court held preempted a state statute that invalidated agreements to arbitrate certain wage collection claims. (See also Basura v. U.S. Home Corp. (2002) 98 Cal.App.4th 1205, 1212-1214, 120 Cal.Rptr.2d 328 [Code Civ. Proc., § 1298.7, which invalidates arbitration clauses contained in agreements to convey real property, is preempted by the FAA.]; Saturn Distribution Corp. v. Williams (4th Cir.1990) 905 F.2d 719 [Virginia statute prohibiting automobile manufacturers and dealers from entering into mandatory alternative dispute resolution agreements is preempted.].)

Courts have also held state statutes preempted that impose exceptional burdens to entering into arbitration agreements or to proving the existence of such agreements. In Doctor's Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 ( Casarotto ), the high court held that the FAA preempted a Montana statute that prescribed a heightened notice requirement for arbitration provisions in a contract: “[G]enerally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening [section] 2. [Citations.] [¶] Courts may not, however, invalidate arbitration agreements under state laws applicable only to arbitration *1357 provisions. [Citations.]” (See Armendariz v. Foundation Health Psychcare Services, Inc., supra, 24 Cal.4th at p. 98[“[U]nder California law, as under federal law, an arbitration agreement may only be invalidated for the same reasons as other contracts.”]; see also Chase v. Blue Cross of California (1996) 42 Cal.App.4th 1142, 1161, 50 Cal.Rptr.2d 178 and cases discussed therein.) In Progressive Cas. v. C.A. Reaseguradora Nacional (2d Cir.1993) 991 F.2d 42, 46, the circuit court invalidated a New York law that imposed a higher burden of proof to establish agreements to arbitrate than to establish other agreements.

[7] The common chord in these decisions is that state laws FN6 treating arbitration as a disfavored method of resolving disputes are preempted to fulfill the FAA's goal of putting arbitration clauses on an equal footing with other contracts. However, the FAA does not preempt a neutral state law contract formation requirement simply because it can be applied to invalidate an arbitration agreement. ( Chase v. Blue Cross of California, supra, 42 Cal.App.4th at p. 1160, 50 Cal.Rptr.2d 178.) We believe the CSA signature requirement is such a law.

FN6. Court decisions on preemption do not distinguish between a state statute, administrative regulation or judicial decision. ( Securities Industry Ass'n v. Connolly (1st Cir.1989) 883 F.2d 1114, 1120, fn. 4.)

**202 Nothing in our interpretation of the CSA suggests that arbitration clauses are invalidated per se. Neither the language of the CSA nor its legislative history even hints that the signature requirement was imposed to affect arbitration. In fact, the trial court enforced the arbitration provision for any class member who signed an agreement containing one. Further, our interpretation does not subject arbitration clauses to disparate treatment. To the contrary, from two distinct perspectives it is clear that the signature requirement is a neutral contract principle. First, all contract provisions covered by the CSA are subject to this formality. No special barrier to an agreement by the parties to arbitrate is imposed. Second, conditioning the enforcement of a contract on a party's signature, while not universal, is certainly widespread in this state. It is imposed in a broad array of commercial and noncommercial settings. Commercial Code sections 2201 and 10201 preclude enforcement of a contract for the sale of goods for $500 or more or for a lease of goods (except nonconsumer leases of under $1,000) unless it is signed by the party against whom enforcement is sought. The general statute of frauds requires a signature from the party to be charged in a variety of different contexts including any agreement that by its terms is not to be performed within a year from its making, and any agreement for the sale of real property or for the lease of real property for longer than one year. (Civ.Code, § 1624, subd. (a)(1) & (3); see 1 Witkin, Summary Cal. Law (9th ed. *1358 1987) Contracts, §§ 261-262, pp. 258-259 [exhaustive list of California agreements subject to a signature requirement].)

Defendants argue for a more stringent preemption standard. They contend that a state law that does not single out arbitration agreements for less favorable treatment may still be preempted. Defendants maintain that the only state law contract principles that can invalidate an arbitration clause, without being preempted by the FAA, are those which apply to every provision in every contract in the state. They point to the final clause of section 2 of the FAA and ask us to interpret it as if it read, “an agreement in writing to submit to arbitration ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of [ every ] contract.” Defendants' contentions find some support in the case law. In its decisions preempting specific state laws under the FAA, the high court has consistently described those that would survive FAA preemption as “generally applicable contract defenses.” (See Casarotto, supra, 517 U.S. at p. 687, 116 S.Ct. 1652; see Allied, supra, 513 U.S. at p. 281, 115 S.Ct. 834; Perry v. Thomas, supra, 482 U.S. at pp. 492-493, fn. 9, 107 S.Ct. 2520.) In listing examples of such defenses, the court has cited fraud, duress, and unconscionability, each one of which applies to every contract. ( Casarotto, at p. 687, 116 S.Ct. 1652; Allied, at p. 281, 115 S.Ct. 834; Shearson/American Express, Inc. v. McMahon (1987) 482 U.S. 220, 226, 107 S.Ct. 2332, 96 L.Ed.2d 185.)

In addition, following the close of briefing, the defendants referred us to Bradley v. Harris Research, Inc. (9th Cir.2001) 275 F.3d 884. In Bradley, the Ninth Circuit considered Business and Professions Code section 20040.5, a part of the California Franchise Relations Act that voids clauses restricting venue to a forum outside this state for claims relating to a franchise agreement involving a franchise business operating within this state. The federal district court had held that Business and Professions Code section 20040.5 invalidated a term in the subject franchise agreement requiring that disputes be arbitrated in Utah . The Ninth Circuit reversed, finding**203 that this state statute was preempted by section 2 of the FAA, even though it does not single out arbitration or treat it as a disfavored dispute resolution technique. The Ninth Circuit itself recognized that the holding in Casarotto could be limited to “state statutes that ‘single out’ arbitration provisions, as opposed to statutes that affect both arbitration and litigation,” but held that the California law should be preempted because it was not generally applicable. ( Bradley, at p. 889) “[Business and Professions Code section] 20040.5 applies only to forum selection clauses and only to franchise agreements; it does not apply ‘to any contract.’ ” ( Bradley, at p. 890; see KKW Enterprises v. Gloria Jean's Gourmet Coffees (1st Cir.1999) 184 F.3d 42, 50-52, and *1359 OPE Intern. LP v. Chet Morrison Contractors, Inc. (5th Cir.2001) 258 F.3d 443, 447 [both of which reached the same result with similar state franchise statutes from Rhode Island and Louisiana , respectively].) FN7 However, neither Bradley nor any of the United States Supreme Court decisions relied on by defendants involved a contract formation requirement like the one here, which is doubly neutral; the signature requirement applies to all provisions in credit services agreements and, through the operation of other California statutes, is imposed on a wide range of contracts not covered by the CSA.

FN7. See also Doctor's Associates v. Hamilton (2d Cir.1998) 150 F.3d 157, 163 [New Jersey case law invalidating a franchise agreement's forum selection clause preempted by the FAA]; Alphagraphics Franchising v. Whaler Graphics (D.Ariz.1993) 840 F.Supp. 708, 710 [same, except as applied to Michigan forum selection statute regarding franchise agreements].

The touchstone for interpreting the FAA should be its purpose. The FAA preempts state law “to the extent that it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’ [Citation.]” ( Volt Info. Sciences v. Leland Stanford Jr. U. (1989) 489 U.S. 468, 477, 109 S.Ct. 1248, 103 L.Ed.2d 488.) In Perry v. Thomas, supra, 482 U.S. at pp. 492-493, footnote 9, 107 S.Ct. 2520 the high court sketched the permissible ambit of state regulation: “[S]tate law, whether of legislative or judicial origin, is applicable if that law arose to govern issues concerning the validity, revocability, and enforceability of contracts generally. A state-law principle that takes its meaning precisely from the fact that a contract to arbitrate is at issue does not comport with this requirement of [section] 2.” In Allied, the high court reiterated that theme: “States may regulate contracts, including arbitration clauses, under general contract law principles and they may invalidate an arbitration clause ‘upon such grounds as exist at law or in equity for the revocation of any contract.’ [Citation.] What States may not do is decide that a contract is fair enough to enforce all its basic terms (price, service, credit), but not fair enough to enforce its arbitration clause. The [FAA] makes any such state policy unlawful, for that kind of policy would place arbitration clauses on an unequal ‘footing,’ directly contrary to the [FAA's] language and Congress' intent.” ( Allied, supra, 513 U.S. at p. 281, 115 S.Ct. 834.) Further, it may be useful to recall the high court's formulation of the FAA's purpose: “to make arbitration agreements as enforceable as other contracts, but not more so.” ( Prima Paint v. Flood & Conklin (1967) 388 U.S. 395, 404, fn. 12, 87 S.Ct. 1801, 18 L.Ed.2d 1270.)

Applying the CSA signature requirement to arbitration clauses does not reflect hostility to such provisions or interfere with any purpose of the FAA. Manifestly, we have not established a different set of requirements for enforcing a contract's **204 “basic terms (price, service, credit) ... [and] its *1360 arbitration clause.” ( Allied, supra, 513 U.S. at p. 281, 115 S.Ct. 834.) Our interpretation of the CSA accords arbitration clauses an identical status with other clauses in original credit services agreements or agreements as modified and so is not preempted by the FAA.FN8

FN8. In light of the conclusion we reach on this issue, we need not address any of plaintiff's remaining contentions that the modification attempted by AFCA is unenforceable.

B. Clams for Injunctive Relief FN***

FN*** See footnote *, ante.

Disposition

The trial court's order regarding defendants' motion to compel arbitration entered on October 3, 2000, is hereby affirmed. The appeal from the order certifying the class entered on April 12, 1999, and the appeal from the order defining the scope of the class entered on October 3, 2000, are


We concur, JONES, P.J., and STEVENS, J.

Cal.App. 1 Dist.,2002.
Mitchell v. American Fair Credit Ass'n, Inc.
99 Cal.App.4th 1345, 122 Cal.Rptr.2d 193, 02 Cal. Daily Op. Serv. 6178, 2002 Daily Journal D.A.R. 7707

END OF DOCUMENT

Slack v. Fair Isaac Corp., 390 F.Supp.2d 906 (N.D.Cal., 2005)

Slack v. Fair Isaac Corp.
390 F.Supp.2d 906
N.D.Cal.,2005.
June 27, 2005 (Approx. 9 pages)

390 F.Supp.2d 906

Motions, Pleadings and Filings

United States District Court,

N.D. California .

Christy SLACK, Plaintiff,
v.
FAIR ISAAC CORP. and MyFICO Consumer Services, Inc., Defendants.

No. C 05-0257 MHP.

June 27, 2005.

Background: Consumer filed putative class action against financial services company and its subsidiary, alleging violations of the Credit Repair Organizations Act, and the

Holdings: The District Court, Patel, J., held that:
(1) consumer's allegations regarding allegedly misleading and deceptive conduct of company and subsidiary satisfied particularity requirements of heightened pleading standard for circumstances constituting fraud;
(2) consumer's allegations regarding financial company's representations about credit repair kit were sufficient to satisfy particularity requirements; and
(3) consumer's allegations stated claim under provision of California Credit Services Act prohibiting credit services organizations from engaging in fraudulent or deceptive business practices in connection with the promotion or sale of credit repair services, but not provision prohibiting false promises to obtain credit, to delete adverse credit history, or to engage in similar fraudulent or misleading practices.

Motion to dismiss granted in part and denied in part.

West Headnotes

[1] KeyCite Notes

29T Antitrust and Trade Regulation
   29TIII Statutory Unfair Trade Practices and Consumer Protection
     29TIII(C) Particular Subjects and Regulations
       29Tk218 k. Credit Repair and Counseling. Most Cited Cases
         (Formerly 92Hk6 Consumer Protection)

Under the Credit Repair Organizations Act, credit repair organizations must comply with a number of statutory requirements intended to ensure that consumers are provided with the information necessary to make an informed decision regarding the purchase of credit repair services and are protected from unfair or deceptive advertising and business practices. Consumer Credit Protection Act, §§ 403(3)(A), 404, 15 U.S.C.A. §§ 1679a(3)(A), 1679b.

[2] KeyCite Notes

170A Federal Civil Procedure
   170AVII Pleadings and Motions
     170AVII(A) Pleadings in General
       170Ak633 Certainty, Definiteness and Particularity
         170Ak636 k. Fraud, Mistake and Condition of Mind. Most Cited Cases

Heightened pleading standard for circumstances constituting fraud applies to allegations premised upon fraudulent conduct regardless of whether fraud is a necessary element of the claim. Fed.Rules Civ.Proc.Rule 9(b), 28 U.S.C.A.

[3] KeyCite Notes

170A Federal Civil Procedure
   170AVII Pleadings and Motions
     170AVII(A) Pleadings in General
       170Ak633 Certainty, Definiteness and Particularity
         170Ak636 k. Fraud, Mistake and Condition of Mind. Most Cited Cases

To the extent that consumer intended to rely upon allegedly “misleading and deceptive” conduct of financial services company and its subsidiary for the purpose of proving that company and subsidiary made false or misleading representations, the heightened pleading standard for circumstances constituting fraud applied in action for alleged violations of provision of Credit Repair Organizations Act prohibiting any person from making or using any untrue or misleading representation of the services of the credit repair organization. Consumer Credit Protection Act, § 404(a)(3), 15 U.S.C.A. § 1679b(a)(3).

[4] KeyCite Notes

170A Federal Civil Procedure
   170AVII Pleadings and Motions
     170AVII(A) Pleadings in General
       170Ak633 Certainty, Definiteness and Particularity
         170Ak636 k. Fraud, Mistake and Condition of Mind. Most Cited Cases

Under civil procedure rule's heightened pleading standard, a complaint must state precisely the time, place, and nature of the misleading statements, misrepresentations, or specific acts of fraud and must set forth an explanation as to why the statement or omission complained of was false and misleading. Fed.Rules Civ.Proc.Rule 9(b), 28 U.S.C.A.

[5] KeyCite Notes

170A Federal Civil Procedure
   170AVII Pleadings and Motions
     170AVII(A) Pleadings in General
       170Ak633 Certainty, Definiteness and Particularity
         170Ak636 k. Fraud, Mistake and Condition of Mind. Most Cited Cases

Consumer's allegations that financial services company and its subsidiary led her to believe that she was purchasing service that would provide her with personalized advice on how to improve her credit when in fact kit she purchased was designed to provide nothing more than a computer-generated response based on its purchaser's credit history, together with allegations setting forth time, place, and nature of false or misleading statements, satisfied particularity requirements of heightened pleading standard for circumstances constituting fraud in action alleging violation of provision of Credit Repair Organizations Act prohibiting untrue or misleading representations of services of credit repair organizations. Consumer Credit Protection Act, § 404(a)(3), 15 U.S.C.A. § 1679b(a)(3); Fed.Rules Civ.Proc.Rule 9(b), 28 U.S.C.A.

[6] KeyCite Notes

170A Federal Civil Procedure
   170AVII Pleadings and Motions
     170AVII(A) Pleadings in General
       170Ak633 Certainty, Definiteness and Particularity
         170Ak636 k. Fraud, Mistake and Condition of Mind. Most Cited Cases

Consumer's allegations that financial services company and its subsidiary represented that credit repair kit would provide its purchasers with personalized advice on how to improve their credit, when in fact kit provided only computer-generated responses that failed to account for details of a particular purchaser's credit history or future credit needs, were sufficient to satisfy particularity requirements of heightened pleading standard for circumstances constituting fraud in action alleging violation of provision of Credit Repair Organizations Act prohibiting credit repair organizations from engaging in or attempting to engage in fraudulent or deceptive business practices in connection with the provision of credit repair services. Consumer Credit Protection Act, § 404(a)(4), 15 U.S.C.A. § 1679b(a)(4).

[7] KeyCite Notes

29T Antitrust and Trade Regulation
   29TIII Statutory Unfair Trade Practices and Consumer Protection
     29TIII(C) Particular Subjects and Regulations
       29Tk218 k. Credit Repair and Counseling. Most Cited Cases
         (Formerly 92Hk6 Consumer Protection)

Consumer's allegations that financial services company and its subsidiary misrepresented services and products she was purchasing stated claim under provision of California Credit Services Act prohibiting credit services organizations from engaging in fraudulent or deceptive business practices in connection with the promotion or sale of credit repair services. West's Ann.Cal.Civ.Code § 1789.13(h).

[8] KeyCite Notes

29T Antitrust and Trade Regulation
   29TIII Statutory Unfair Trade Practices and Consumer Protection
     29TIII(C) Particular Subjects and Regulations
       29Tk218 k. Credit Repair and Counseling. Most Cited Cases
         (Formerly 92Hk6 Consumer Protection)

Consumer's allegations that financial services company and its subsidiary promised to provide her with customized advice that would permit her to find errors in her credit report and correct them did not amount to a promise either to remove information from consumer's credit report, false or otherwise, or to obtain an extension of credit for consumer or for any similarly situated individual, as was required to establish violation of provision of California Credit Services Act prohibiting credit services organizations from making false promises to obtain credit, to delete adverse credit history, or to engage in similar fraudulent or misleading practices. West's Ann.Cal.Civ.Code § 178.13(g).

*908 Jeff S. Westerman, Sabrina S. Kim, Milberg Weiss Bershad & Schulman LLP, Los Angeles, CA, Melvyn I. Weiss, Attorney at Law, Michael C. Spencer, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY, for Plaintiff.
Rebecca Justice Lazarus, Gibson, Dunn & Crutcher, San Francisco , CA , for Defendant.

MEMORANDUM & ORDER

Re: Motion to Dismiss

PATEL, District Judge.
On January 18, 2005, plaintiff Christy Slack filed this putative class action against defendants Fair Isaac Corp. and myFICO Consumer Services, Inc. (collectively “defendants”) alleging violations of the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq., and the California Credit Services Act of 1984, Cal. Civ.Code § 1789.10 et seq. Defendants now move pursuant to Federal Rule of Civil Procedure 12(b)(6) to dismiss plaintiff's claims under 15 U.S.C. § 1679b(a)(3)-(4) and California Civil Code § 1789.13(g)-(h) for failure to state a claim upon which relief can be granted. Having considered the parties' arguments fully and for the reasons set forth below, the court enters the following memorandum and order.

BACKGROUNDFN1

FN1. Unless otherwise noted, the facts sets forth below are drawn from the allegations in plaintiff's amended complaint.

Defendant Fair Isaac Company (“FICO”) is a San Rafael , California financial services company best known for providing consumer credit rating agencies and lenders with “FICO” scores, a measure of consumer credit risk derived from the company's proprietary credit risk model. Defendant myFICO Consumer Services, Inc. (“myFICO”) is a subsidiary of FICO that provides consumers with various credit-related*909 services, including a number of products offered via defendants' “myFICO.com” website. Among those products is an online credit counseling service marketed as the “Suze Orman FICO Kit Platinum” (hereinafter “Platinum Kit”). The Platinum Kit provides consumers with advice on how to manage their debts and improve their credit ratings. Specifically, defendants' website represents that the kit provides its purchasers with “personalized advice” on how they can improve their FICO score and “personal coaching” on matters related to consumer credit. In addition, a subscription to the Platinum Kit service includes information about the purchaser's credit history such as his or her FICO score and credit reports from each of the three major credit reporting agencies.FN2

FN2. The three major credit reporting agencies whose credit history reports are available via defendants' website are Equifax, Experian, and TransUnion.

Plaintiff Christy Slack, a resident of Milton , Florida , visited the myFICO website in September 2004. After viewing the site, plaintiff purchased the Platinum Kit for $49.95, arranged to have that amount billed to her credit card, and obtained her FICO score and a TransUnion credit report via the myFICO site. In addition, defendants' website informed plaintiff that her FICO score of 508 was “well below the average of U.S. consumers” and that the types of credit available to her and the interest rates that she might be eligible to receive would be limited accordingly. The site also listed various reasons why plaintiff received a below-average FICO score and advised plaintiff that she could improve her credit rating if she paid her bills on time and that her score would continue to improve so long as she continued to do so.

Plaintiff now contends that defendants misled her into believing that the Platinum Kit would provide her with “advanced credit management services” and “personalized assistance” in improving her credit rating. Instead, plaintiff alleges that she received only generalized, computer-generated advice that failed to account for her credit profile or her borrowing needs. In addition, plaintiff asserts that the myFICO website is misleading and deceptive in a host of other ways. For example, plaintiff alleges that the website's “Which Product is Right for You?” section recommends that consumers purchase the Platinum Kit regardless of how they respond to certain questions regarding their credit history, credit ratings, and expected future credit needs. Plaintiff also alleges that defendants falsely imply that purchasers of the Platinum Kit will receive updated credit reports during the course of their one-year subscription, when in fact the kit includes only one report from each of the credit agencies. In addition, plaintiff asserts that defendants misleadingly fail to inform consumers that they are entitled under California law to receive annual credit reports from each of the major credit reporting agencies for a fee of $8.00 per report. Finally, plaintiff contends that the design of defendants' website, which she characterizes as “segmented and incomplete,” has the effect of misleading and deceiving consumers.

Based on these allegations, plaintiff filed the instant action on January 18, 2005. On March 10, 2005, plaintiff filed an amended complaint, alleging causes of action under the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq., and the California Credit Services Act, Cal. Civ.Code § 1789.10 et seq., as well as asserting a claim for unjust enrichment under California law. In addition, plaintiff seeks certification to represent two classes of individuals, which she respectively identifies as all persons who purchased services from defendants*910 in violation of the Credit Repair Organizations Act and the Credit Services Act during the relevant

On April 22, 2005, defendants moved to dismiss certain aspects of plaintiff's claims for relief under the Credit Repair Organizations Act and Credit Services Act. Specifically, defendants contend that plaintiff cannot state a claim upon which relief can be granted under 15 U.S.C. § 1679b(a)(3)-(4) or under California Civil Code § 1789.13(g)-(h) and thus urges the court to dismiss those claims pursuant to Federal Rule of Civil Procedure 12(b)(6). The court considers the issues raised by defendants' motion in the discussion that follows.

LEGAL STANDARD

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) “tests the legal sufficiency of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir.2001). “[U]nless it appears beyond doubt that [a] plaintiff can prove no set of facts in support of her claim which would entitle her to relief,” a motion to dismiss must be denied. Lewis v. Telephone Employees Credit Union, 87 F.3d 1537, 1545 (9th Cir.1996) (citation omitted); see also Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). When assessing the legal sufficiency of a plaintiff's claims, the court must accept as true all material allegations of the complaint, and all reasonable inferences must be drawn in favor of the non-moving party. See, e.g., Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996) (citations omitted). Dismissal is proper under Rule 12(b)(6) “only where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory.” Navarro, 250 F.3d at 732 (quoting Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.1988)).

DISCUSSION

I. Credit Repair Organizations Act

[1] Plaintiff's first cause of action arises under the Credit Repair Organizations Act. In enacting that statute, Congress sought to regulate the conduct of businesses that provide consumers with services or advice related to improving their credit record, credit history, or credit rating. 15 U.S.C. § 1679a(3)(A). Such businesses, which the statute defines as “credit repair organization[s],” must comply with a number of statutory requirements intended to ensure that consumers “are provided with the information necessary to make an informed decision regarding the purchase of [credit repair] services” and are protected from “unfair or deceptive advertising and business practices.” Id. §§ 1679(b), 1679a(3)(A); see also FTC v. Gill ( “Gill I”), 71 F.Supp.2d 1030, 1036 (C.D.Cal.1999), 265 F.3d 944 (9th Cir.2001).

15 U.S.C. § 1679b(a)(3), prohibits any person from “mak[ing] or us[ing] any untrue or misleading representation of the services of the credit repair organization.” 15 U.S.C. § 1679b(a)(3). The second, 15 U.S.C. § 1679b(a)(4), provides that no person may “engage ... in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of [a] credit repair organization.” Id. For purposes of the instant motion, defendants concede that they are “credit repair organization[s]” subject to regulation under the statute. Thus, the question before the court is whether plaintiff's amended complaint alleges an untrue or misleading representation*911 or a fraudulent or deceptive business practice within the meaning of the relevant provisions of section 1679b(a).FN3 The court considers each of these provisions below.

FN3. In addition to the facts alleged in the amended complaint, both parties cite to material from the myFICO website that falls outside the four corners of the pleadings. The court assumes without deciding that the myFICO site is incorporated by reference into the amended complaint and thus could be considered for purposes of adjudicating a motion to dismiss. See United States v. Ritchie, 342 F.3d 903, 908 (9th Cir.2003). However, neither party has submitted any competent evidence of the myFICO's site's contents at the time that it was viewed by plaintiff or, for that matter, by any member of the putative classes of individuals that plaintiff purports to represent. In the absence of such evidence, the sufficiency of plaintiff's allegations must be determined based solely on the allegations in the pleadings and any judicially noticeable facts. Accord id. The facts upon which the following discussion is predicated are therefore limited accordingly.

A. 15 U.S.C. § 1679b(a)(3)

The first issue raised by defendants' motion is whether plaintiff's amended complaint adequately alleges that defendants made or used an “untrue or misleading representation” in connection with the advertisement or sale of credit repair services via the myFICO website. However, before reaching the merits of the allegations in plaintiff's amended complaint, the court must identify the proper standard for pleading violations of 15 U.S.C. § 1679b(a)(3).

[2] As the Ninth Circuit has yet to address the issue of what pleading standard applies to claims brought pursuant to section 1679b(a)(3), the starting point for the court's inquiry is Federal Rule of Civil Procedure 9(b), which requires “the circumstances constituting fraud” to be pleaded with particularity. While section 1679b(a)(3) on its face requires a plaintiff to establish the false or misleading nature of the defendant's representation, plaintiff argues that the provision nonetheless falls outside the scope of Rule 9(b) because it does not require proof of a number of elements of a claim for common law fraud (for example, scienter and intent to induce reliance). See, e.g., FTC v. Gill ( “ Gill II”), 265 F.3d 944, 955 (9th Cir.2001). However, Rule 9(b) expressly provides that its heightened pleading standard extends to “the circumstances constituting fraud” as well as to causes of action that require proof of fraud as an element of the claim. Fed.R.Civ.P. 9(b). The Ninth Circuit has interpreted such circumstances to extend to any claim that “sounds in fraud,” explaining that:

In cases where fraud is not a necessary element of a claim, a plaintiff may choose nonetheless to allege in the complaint that the defendant has engaged in fraudulent conduct. In some cases, the plaintiff may allege a unified course of fraudulent conduct and rely entirely on that course of conduct as the basis of a claim. In that event, the claim is said to be “grounded in fraud” or to “sound in fraud,” and the pleading of that claim as a whole must satisfy the particularity requirement of Rule 9(b).

Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103-04 (9th Cir.2003) (citations omitted). In other words, Rule 9(b) applies to allegations premised upon fraudulent conduct regardless of whether fraud is a necessary element of the claim.

[3] Applying that standard here, it cannot be seriously disputed that the misrepresentations and omissions alleged in plaintiff's amended complaint fall within the scope of Rule 9(b). While it may be true that the elements of fraud need not be proven to establish liability under section 1679b(a)(3), plaintiff's claims rely almost*912 exclusively on defendants' allegedly “misleading and deceptive” conduct. Such conduct “sounds in fraud” even if it would not necessarily give rise to a cause of action for deceit at common law. Thus, to the extent that plaintiff intends to rely upon that conduct for the purpose of proving that defendants have made false or Rule 9(b)applies.

[4] This conclusion is not necessarily fatal to plaintiff's claim, however, provided that her amended complaint complies with the rule's heightened pleading standard. To do so, the complaint must “state precisely the time, place, and nature of the misleading statements, misrepresentations, or specific acts of fraud.” Kaplan v. Rose, 49 F.3d 1363, 1370 (9th Cir.1994) (citations omitted), cert. denied, 516 U.S. 810, 116 S.Ct. 58, 133 L.Ed.2d 21 (1995). In addition, Rule 9(b) requires that a complaint “set forth an explanation ”In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir.1994)(en banc).

[5] Construing the pleadings in the light most favorable to plaintiff, it is apparent that these requirements are met by the allegations in the amended complaint. For example, plaintiff alleges that although the myFICO website states that the Platinum Kit will provide “customized advice on what [consumers] need to do to improve [their] credit,” plaintiff received only a general assessment of the impact that her low FICO score was likely to have on her ability to obtain credit and a recommendation that she pay her bills on time. Pl.'s Am. Compl. ¶¶ 22, 25. This clearly alleges a false or misleading statement. In addition, plaintiff's amended complaint explains why this statement was false or misleading, asserting that defendants led plaintiff to believe that she was purchasing a service that would provide her with personalized advice on how to improve her credit when in fact the Platinum Kit was designed to provide nothing more than a computer-generated response based on its purchaser's credit history. Id. ¶¶ 25-26. In short, plaintiff's allegations regarding the Platinum Kit set forth the time, place, and nature of the false or misleading statements that defendants allegedly made and explain why those statements were untrue. This degree of particularity easily satisfies the requirements of Rule 9(b).

While this conclusion is by itself sufficient to warrant denying defendants' motion to dismiss plaintiff's section 1679b(a)(3) claim, it should also be noted that the amended complaint includes a number of other allegations related to the design of the myFICO website and the nondisclosure of facts regarding a consumer's rights under California law and the business practices of the consumer credit industry. Pl.'s Am. Compl. ¶¶ 11, 18, 22, 27-30. Admittedly, these allegations fail to identify any express representation that defendants have made regarding the services provided by the myFICO website. However, as the Gill decisions of the Central District of California and Ninth Circuit make clear, this is not the proper standard to apply in evaluating the falsity of a credit repair organization's statement under 15 U.S.C. § 1679b(a)(3). The Gill case arose from the FTC's allegations that two lawyers made false or misleading representations concerning their credit repair services, including numerous statements in radio and newspaper advertisements. See Gill I, 71 F.Supp.2d at 1033. In determining whether those statements violated the Credit Repair Organizations Act, the district court noted that inquiry under section 1679b(a)(3) must focus on whether “the overall net impression” that is conveyed by a statement in an advertisement is false and misleading. Id. at 1043 (quoting *913 FTC v. United States Sales Corp., 785 F.Supp. 737, 745 (N.D.Ill.1992)). Thus, the district court concluded that both explicit misrepresentations and impliedly misleading statements can give rise to claims under the Credit Reporting Organizations Act. Id. On appeal, the Ninth Circuit affirmed, observing that statements which create “an overall net impression” of falsity may be actionable under 15 U.S.C. § 1679b(a)(3). See Gill II, 265 F.3d at 956 (upholding the district court's order granting summary judgment in favor of the FTC).

Although Gill is clearly distinguishable on its facts from the case at bar, its holding is nevertheless apposite to the allegations in plaintiff's amended complaint, which, as noted above, include a number of implicitly false statements relating to the credit repair services provided by the myFICO website. Under the standard set forth in Gill I and affirmed by the Ninth Circuit in Gill II, such implicit misrepresentations may properly be considered in determining whether the “overall net impression” created by the website is misleading. See Gill II, 265 F.3d at 956; Gill I, 71 F.Supp.2d at 1043. Those implicit representations thus serve to bolster plaintiff's claim that the myFICO site expressly misrepresents the nature of services provided to purchasers of the Platinum Kit. Accordingly, having already made clear that those express misrepresentations are by themselves sufficient to state a claim under section 1679b(a)(3), it follows a fortiori that plaintiff's amended complaint as a whole adequately alleges a violation of that provision. The court therefore denies defendants' motion for partial dismissal as to that claim.

B. 15 U.S.C. § 1679b(a)(4)

[6] The second issue raised by defendants' motion to dismiss turns on whether plaintiff has stated a claim under 15 U.S.C. § 1679b(a)(4). Under section 1679b(a)(4), credit repair organizations are prohibited from engaging in or attempting to engage in fraudulent or deceptive business practices in connection with the provision of credit repair services. 15 U.S.C. § 1679b(a)(4). Again, because defendants do not contest the fact they are credit repair organizations for purposes of the instant motion, the issue before the court is whether plaintiff's allegations concerning the services that defendants have offered via the myFICO website could be found to be fraudulent or deceptive business practices within the

For the reasons stated above, there can be no serious dispute that the heightened pleading standard of Rule 9(b) applies to plaintiff's claim under section 1679b(a)(4). Nonetheless, in adjudicating a motion to dismiss under Rule 12(b)(6), the court remains obligated to construe the pleadings in the light most favorable to the nonmoving party. See Cahill, 80 F.3d at 337-38. Here, plaintiff alleges that defendants have represented that the Platinum Kit that will provide its purchasers with personalized advice on how to improve their credit, when in fact that product provides only computer-generated responses that fail to account for the details of a particular purchaser's credit history or future credit needs. Granting plaintiff the benefit of all favorable inferences, it is impossible to conclude that proof of such facts at trial could not establish defendants' liability under 15 U.S.C. § 1679b(a)(4). Furthermore, while the remaining allegations in plaintiff's amended complaint may or may not prove to be relevant in determining whether defendants' conduct amounts to a fraudulent or deceptive business practice, that inquiry involves questions of fact that are not properly addressed on a motion to dismiss. Accordingly, the court denies defendants' motion to dismiss plaintiff's claim under section 1679b(a)(4).

*914 II. California Credit Services Act

[7] In addition to alleging violations of the Credit Repair Organizations Act, plaintiff's amended complaint also alleges violations of the California Credit Services Act. Defendants' motion to dismiss addresses two provisions of that statute, California Civil Code § 1789.13(g) and (h). Much like 15 U.S.C. § 1679b(a)(4), Civil Code § 1789.13(h) prohibits “credit services organization[s]” from engaging in fraudulent or deceptive business practices in connection with the promotion or sale of credit repair services. Thus, given that defendants' motion does not raise the issue of whether FICO and myFICO are credit services organizations subject to the Credit Services Act's anti-fraud provisions, the preceding discussion of plaintiff's claim under 15 U.S.C. § 1679b(a)(4) compels the court to conclude that Civil Code § 1789.13(h).

[8] However, a different resulted is warranted with respect to Civil Code § 1789.13(g). Paragraph (g) of section 1789.13 provides that no credit

[m]ake or use any untrue or misleading representations in the offer or sale of [its] services, including either of the following:

(1) Guaranteeing or otherwise stating that the organization is able to delete an adverse credit history, unless the representation clearly discloses, in a manner equally as conspicuous as the guarantee, that this can be done only if the credit history is inaccurate or obsolete and is not claimed to be accurate by the creditor who submitted the information.

(2) Guaranteeing or otherwise stating that the organization is able to obtain an extension of credit, regardless of the buyer's previous credit problems or credit history, unless the representation clearly discloses, in a manner equally as conspicuous as the guarantee, the eligibility requirements for obtaining an extension of credit.

Cal. Civ.Code. § 1789.13(g). There are no published opinions interpreting this provision of the Credit Services Act. Nonetheless, the examples of “untrue or misleading representations” listed in the statute plainly indicate that it is directed at credit service agencies that falsely “guarantee[ ] or otherwise stat[e]” that they are able to obtain an extension of credit on behalf of a consumer or falsely promise to remove adverse entries from a consumer's credit history. Admittedly, these are only examples of the type of false or misleading representations that are “include[d]” within the scope of the statute. Nevertheless, interpreting the statute's “untrue or misleading representations” term in light of these examples, it is apparent that section 1789.13(g) is directed at credit services organizations that make false promises to obtain credit, to delete adverse credit history, or to engage in similar fraudulent or misleading practices. This view is also supported by the legislative history of the Credit Services Act, which makes clear that the statute primarily targets “unscrupulous” credit services providers that “offer to consolidate debt, set up payment plans and budgets, attempt to clean up a person's credit record or obtain credit for that person in exchange for a fee.” California Bill Analysis, Senate Judiciary Comm., A.B. 2279 (July 9, 1996).

This type of conduct is simply not alleged in plaintiff's amended complaint. It is true that plaintiff asserts that defendants promised to provide her with customized advice that would permit her to find errors in her credit report and correct them. Pl.'s Am. Compl. ¶ 9. However, this does not amount to a promise to remove information from plaintiff's credit report, false or otherwise. Similarly, although defendants are alleged to have offered information*915 on interest rates for consumer credit, id. ¶ 23, nothing in the amended complaint suggests that defendants have promised to obtain an extension of credit for plaintiff or for any similarly situated individual. Thus, because plaintiff has failed to allege any acts by defendants that might possibly give rise to a violation of Civil Code § 1789.13(g), the court grants defendants' motion

CONCLUSION

For the reasons stated above, defendants' motion to dismiss is GRANTED IN PART and DENIED IN PART.

IT IS SO ORDERED.

N.D.Cal.,2005.
Slack v. Fair Isaac Corp.
390 F.Supp.2d 906

END OF DOCUMENT