Skip to main content
Menu Icon Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • 9th Circuit denies rent-to-own company’s arbitration bid


    On June 28, the U.S. Court of Appeals for the 9th Circuit affirmed the denial of a rent-to-own company’s motion to compel arbitration in a putative class action alleging the company charged excessive prices. According to the opinion, three named plaintiffs filed suit against the company in 2017, alleging that the company structured its rent-to-own pricing in violation of California law, including the Karnette Rental-Purchase Act, the Unfair Competition Law, the Consumers Legal Remedies Act, and the state’s prohibitions against usurious loans. The plaintiffs sought public injunctive relief, as well as compensatory damages and restitution, among other things. The company moved to compel arbitration in accordance with the arbitration agreement executed in connection with the plaintiff’s rent-to-own air conditioner contract. The district court denied the motion to compel arbitration, concluding that the arbitration agreement violates the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here) because it constitutes a waiver of the plaintiff’s substantive right to seek public injunctive relief. Moreover, the court concluded that McGill was not preempted by the Federal Arbitration Act (FAA), and that the agreement’s severance clause allowed for the plaintiff’s Karnette Act, UCL, and CLRA claims to be severed from the arbitration.

    On appeal, the 9th Circuit agreed with the district court, rejecting the company’s arguments that McGill was preempted by the FAA. The appellate court found that McGill does not interfere with the bilateral nature of a typical arbitration, stating “[t]he McGill rule leaves undisturbed an agreement that both requires bilateral arbitration and permits public injunctive claims.” Moreover, the appellate court noted that the severance clause in the agreement, which precludes an arbitrator from awarding public injunctive relief, is triggered by the McGill rule, and disagreed with the company that the arbitrator would still adjudicate liability first, concluding that the clause provides “the entire claim be severed for judicial determination.”

    Courts Appellate Ninth Circuit Arbitration Federal Arbitration Act

    Share page with AddThis
  • California District Court says payday lender’s arbitration provision is unconscionable


    On June 10, the U.S. District Court for the Southern District of California denied a national payday lender’s motion to compel arbitration, agreeing with plaintiffs that the arbitration provision in their loan agreement was unenforceable because it was procedurally and substantively unconscionable. According to the opinion, plaintiffs filed a putative class action suit against the payday lender alleging the lender sells loans with usurious interest rates, which are prohibited under California’s Unfair Competition Law and Consumer Legal Remedies Act. The lender moved to compel arbitration asserting that the consumers’ loan agreements contain prohibitions on class actions in court or in arbitration, require arbitration of any claims arising from a dispute related to the agreement, and disallow consumers from acting as a “private attorney general.”

    The court first determined that California law applied.  It concluded that, while the lender was headquartered in Kansas, the consumers obtained their loans in California, and California “has a materially greater interest than Kansas in employing its laws to resolve the instant dispute,” based on its “material and fundamental interest in maintaining a pathway to public injunctive relief in unfair competition cases.”

    The court then determined that the arbitration provision was procedurally unconscionable because, even though the consumers had a 30-day opt-out window, it required them to waive statutory causes of action “before they knew any such claims existed.” Finally, because the provision contained a waiver of public injunctive relief, the court determined it was substantively unconscionable based on the California Supreme Court decision in McGill v. Citibank, N.A (covered by a Buckley Special Alert here). The court rejected the lender’s arguments that McGill was preempted under the Federal Arbitration Act (FAA), noting a 2015 decision by the U.S. Court of Appeals for the 9th Circuit, “effectively controls” the dispute and the 9th Circuit reasoned that a similar state-law rule against waivers was not preempted by the FAA. Lastly, the court held that the unconscionable public injunctive relief waiver provision was not severable from the entire arbitration provision, because the agreement contained “poison pill” language that would invalidate the entirety of the arbitration provision.


    Courts Arbitration Federal Arbitration Act State Issues Ninth Circuit Preemption

    Share page with AddThis
  • District Court orders ATM and overdraft fee case to arbitration


    On January 25, the U.S. District Court for the Southern District of California granted a bank’s motion to compel arbitration in connection with a lawsuit concerning the bank’s assessment of two types of fees. According to the order, the plaintiff filed a lawsuit asserting claims for breach of contract and violation of California’s Unfair Competition Law due to the bank’s alleged practice of charging fees for out-of-network ATM use and overdraft fees related to debit card transaction timing. The bank moved to compel arbitration pursuant to the arbitration provision in the deposit account agreement executed between the bank and the plaintiff. The plaintiff argued against arbitration, citing a California Supreme Court case, McGill v. Citibank, which held that “waivers of the right to seek public injunctive relief in any forum are unenforceable.” In response, the bank argued that (i) McGill does not apply because the plaintiff is not seeking public injunctive relief; and (ii) McGill is preempted by the Federal Arbitration Act (FAA). The court agreed with the bank, determining that the relief sought by the plaintiff would primarily benefit her, stating “any public injunctive relief sought by [plaintiff] is merely incidental to her primary aim of gaining compensation for injury.” As for preemption, the court noted that even if the McGill rule was applicable to a contract, it would not survive preemption as the U.S. Supreme Court has “consistently held that the FAA preempts states’ attempts to limit the scope of arbitration agreements,” and “the McGill rule is merely the latest ‘device or formula’ intended to achieve the result of rendering an arbitration agreement against public policy.” 

    Courts State Issues Fees Arbitration Preemption U.S. Supreme Court Federal Arbitration Act

    Share page with AddThis

Upcoming Events