## Facts

- H & R Block prepared Roy Carbajal’s 1998 federal tax return and estimated a $5,001 refund.
- Carbajal signed documents for a “rapid refund,” a transaction pairing a loan with an assignment of the tax refund as repayment security.
- The agreement authorized the lender to apply refund proceeds to retire prior-year loans allegedly still owed and contained a clause requiring arbitration of disputes.
- Carbajal received about $1,800; the balance of the expected refund was applied to an asserted earlier-year loan obligation.
- Carbajal sued H & R Block-related entities, asserting claims including under the Fair Debt Collection Practices Act (FDCPA).
- Defendants moved to compel arbitration under the agreement’s arbitration clause.
- The district court compelled arbitration and dismissed the action; Carbajal appealed from the final decision.

## Issues

1. Whether the arbitration clause was unenforceable as unconscionable or as part of an adhesive contract under the contract’s chosen Delaware law.
2. Whether an arbitration provision requiring each side to bear its own arbitration costs conflicted with the FDCPA’s fee-shifting scheme and thus invalidated arbitration.

## Decision

- The Seventh Circuit affirmed the order compelling arbitration and dismissing the federal action.
- The court held the arbitration clause was not unconscionable under Delaware law merely because it appeared in a standardized, non-negotiable consumer agreement.
- The court held the cost-allocation term did not create a conflict with the FDCPA sufficient to defeat enforcement of the arbitration agreement.
- The court confirmed appellate jurisdiction because an outright dismissal in favor of arbitration is a final decision.

## Legal Principles

- Under the Federal Arbitration Act, arbitration agreements are enforceable absent a valid contract defense under applicable state law.
- A contract of adhesion, without a showing of substantive unfairness meeting the governing state’s unconscionability standard, does not render an arbitration clause unenforceable.
- Statutory claims, including FDCPA claims, may be subject to arbitration unless Congress has barred arbitration or arbitration prevents effective vindication of substantive statutory rights.
- A party challenging arbitration based on anticipated expenses must show non-speculative, prohibitive cost barriers; hypothetical deterrence is insufficient.

## Conclusion

The court enforced the refund-anticipation loan agreement’s arbitration clause, rejecting unconscionability and FDCPA-based objections, and required Carbajal to pursue his claims in arbitration rather than federal court.


Carbajal v. H & R Block Tax Servs., Inc., 372 F.3d 903 (7th Cir. 2004)