4th Circuit affirms certification of class action in tribal lending case

Courts Appellate RICO Tribal Lending Consumer Finance Payday Lending Usury Interest Rate Class Action State Issues Virginia

On January 24, the U.S. Court of Appeals for the Fourth Circuit concluded that a district court did not abuse its discretion when certifying a class action. The lawsuit alleges an individual who orchestrated an online payday lending scheme violated the Racketeer Influenced and Corrupt Organization Act (RICO), engaged in unjust enrichment, and violated Virginia’s usury law by partnering with federally-recognized tribes to issue loans with allegedly usurious interest rates. (Covered by InfoBytes here.) The plaintiffs alleged the defendant partnered with the tribes to circumvent state usury laws even though the tribes did not control the lending operation. The district court stated that, as there was “no substantive involvement” by the tribes in the lending operation and that the evidence showed that the defendant was “functionally in charge,” the lending operation—which allegedly charged interest rates exceeding Virginia’s 12 percent interest cap—could not claim tribal immunity. 

After the district court certified two borrower classes, the defendant appealed, arguing, among other things, that “[b]orrowers entered into enforceable loan agreements with lending entities in which they waived their right to bring class claims against him,” and that “common issues do not predominate so as to permit class treatment in this case.” Specifically, the defendant claimed that his role in the lending operations changed throughout the class period, and that individualized “proof” and “tracing” would be necessary to prove that he “participated in the direction of the affairs of the alleged enterprise” or that he received some portion of each borrower’s interest payments.

On appeal, the 4th Circuit disagreed with the defendant’s assertions. It found no reason to question the district court’s conclusion that the defendant was the “de facto” head of the lending operations throughout the class period. “And the fact that [the defendant] served as the ‘de facto head’ of the lending operations for the entire class period supports the district court’s determination that the Borrowers will be able to use common proof to show that [the defendant] ‘participated in the direction of the’ lending operations such that common questions predominate over individual questions[,]” the appellate court stated. The 4th Circuit further concluded that the “record supports the district court’s conclusion that [the defendant] lied when he said he was never involved in receiving or demanding payments on [the lending operation’s] loans.”