District Court certifies payday lending class action
On October 31, the U.S. District Court for the District of New Jersey certified two classes of consumers alleging a payday lender and its subsidiaries charged usurious, triple-digit interest rates on short-term loans originated by a nonparty entity run by a member of a federally recognized Indian tribe. The lawsuit—which alleges, among other things, usury and consumer fraud in violation of New Jersey law, common law restitution and unjust enrichment, and violations of the Racketeer Influenced and Corrupt Organizations Act—was filed in 2016 with the defendants arguing that the claims were subject to an arbitration provision accompanying the loan agreement. However, as previously covered by InfoBytes, the U.S. Court of Appeals for the Third Circuit upheld the district court’s decision that the tribal arbitration forum referenced in the loan agreement does not actually exist and, “because the loan agreement’s forum selection clause is an integral, non-severable part of the arbitration agreement,” the entire arbitration agreement is unenforceable.
According to the plaintiffs, the defendants evaded state law usury limits by attempting to use the sovereignty of an Indian tribe, with most loans carrying an annual percentage interest rate of 139 percent. While the defendants challenged the notion that common questions about the loan agreements predominated over the individual concerns of each class member, the court determined that the loan agreements at issue have an identical structure of interest amortized over a fixed payment schedule. “Plaintiffs have therefore shown that they can use common evidence to prove their [Consumer Fraud Act] claims, and that common questions predominate,” the court stated. “Namely the nearly identical, allegedly usurious loan agreements, which caused an out of pocket loss in the form of usurious interest.” The court also dismissed the defendants’ argument that the plaintiffs’ suit was inferior to a 2018 CFPB action, which resulted in a $10.3 million civil money penalty but no restitution (previous InfoBytes coverage here), stating that “[i]ncredibly, [d]efendants argue that this CFPB action, which denied any recovery to the putative class members here, is a superior means for them to obtain relief.”