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Financial Services Law Insights and Observations

9th Circuit: Arbitration agreement authorizes public injunctive relief under California law

Courts Ninth Circuit Appellate Arbitration Mobile Banking State Issues

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On February 19, the U.S. Court of Appeals for the Ninth Circuit affirmed a grant of a motion to compel arbitration filed by the operator of a smartphone app that offers financial services to consumers, holding that an agreement between a consumer and the lender authorizes the arbitrator to award all injunctive remedies available in an individual lawsuit under California law. In this case, the plaintiff took out a credit-builder loan and was required to enroll in a program offered by the lender as a prerequisite for applying for the loan, which required the payment of monthly fees. After the consumer fell behind on her fees, deposits, and loan payments, she filed a putative class action suit claiming that when she tried to cancel her membership in the program, the lender informed her that she first had to pay off the loan in full, which could only happen after she paid the still-accumulating past-due membership fees. The lender moved to compel arbitration, which the district court granted, ruling that the arbitration agreement was fully enforceable and that the agreement “explicitly” did not violate the ruling established in McGill v. Citibank NA, as it allowed the arbitrator to award “all remedies in an individual lawsuit,” including, without limitation, public injunctive relief. On appeal, the 9th Circuit rejected the consumer’s argument that she could only secure public injunctive relief by acting as a private attorney general, which the arbitration agreement explicitly prohibited. “Public injunctive relief is available under California law in individual lawsuits—not just in private-attorney-general suits,” the appellate court wrote. “It follows that [the consumer] may secure that relief in arbitration under the [a]greement.” As a result, the court affirmed the district court’s order to compel arbitration.

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