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Financial Services Law Insights and Observations

9th Circuit upholds $1.3 billion judgment for payday scheme

Courts Ninth Circuit Appellate FTC Act Payday Lending TILA Disclosures

Courts

On December 3, the U.S. Court of Appeals for the 9th Circuit upheld a $1.3 billion judgment against defendants-appellants responsible for operating an allegedly deceptive payday lending scheme. As previously covered by InfoBytes, in October 2016, the FTC announced that the U.S. District Court for the District of Nevada ordered a Kansas-based operation and its owner to pay nearly $1.3 billion for allegedly violating Section 5(a) of the FTC Act by making false and misleading representations about loan costs and payment. The owner appealed to the 9th Circuit, arguing that the loan notes were “technically correct” because the fine print located under the TILA disclosure box contained all the legally required information. The appeals court disagreed. In affirming the district court’s judgment, the appeals court determined the loan note was still deceptive even though the fine print contained the relevant information about the loan’s automatic renewal terms, stating “[appellants’] argument wrongly assumes that non-deceptive business practices can somehow cure the deceptive nature of the Loan Note.” Moreover, the appeals court rejected the argument about technical correctness, citing the FTC Act’s “consumer-friendly standard” (which does not require technical accuracy) and noting that “consumers acting reasonably under the circumstances—here, by looking to the terms of the Loan Note to understand their obligations—likely could be deceived by the representations made there.” Among other things, the appeals court also rejected the appellant owner’s challenge to the $1.3 billion judgment (based on an argument that the lower court overestimated his “wrongful gain” and that the FTC Act only allows the court to issue injunctions), concluding that the owner failed to provide evidence contradicting the wrongful gain calculation and that a district court may grant any ancillary relief under the FTC Act, including restitution.

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