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On May 12, the U.S. District Court for the Eastern District of Virginia preliminarily approved a nearly $500 million class action settlement resolving allegations that tribal online lending companies charged usurious interest rates. Plaintiffs’ filings outline their class action against tribal entities, as well as several of the entities’ non-tribal business partners (individual defendants), for making and collecting on high-interest loans.
The U.S. Court of Appeals for the Fourth Circuit previously upheld a district court’s denial of defendants’ bid to dismiss or compel arbitration in the case (covered by InfoBytes here). The 4th Circuit concluded that the arbitration clauses in the loan agreements impermissibly forced borrowers to waive their federal substantive rights under federal consumer protection laws, and contained an unenforceable tribal choice-of-law provision because Virginia law caps general interest rates at 12 percent. As such, the appellate court stated that the entire arbitration provision was unenforceable. “The [t]ribal [l]enders drafted an invalid contract that strips borrowers of their substantive federal statutory rights,” the appellate court wrote. “[W]e cannot save that contract by revising it on appeal.”
The 4th Circuit also declined to extend tribal sovereign immunity to the tribal officials, determining that while “the tribe itself retains sovereign immunity, it cannot shroud its officials with immunity in federal court when those officials violate applicable state law.” The appellate court further noted that the “Supreme Court has explicitly blessed suits against tribal officials to enjoin violations of federal and state law.”
Following more than three years of litigation, the parties eventually reached a settlement that will include tribal officials canceling approximately $450 million in debt. As part of the settlement, the tribal officials will eliminate the balance on any outstanding loans on the basis that the debts are disputed, cease all collection activity, and will not sell, transfer, or assign any outstanding loans for collection. Tribal officials will also request deletion of any negative tradelines for loans in the name of tribal officials or tribal corporations, and will pay an additional $1 million to cover the costs of notice and administration for the settlement and $75,000 to go towards service awards. Additionally, the individual defendants will create a $39 million common fund that will go to class members who repaid unlawful amounts on their loans. Class counsel is also seeking attorneys’ fees and costs totaling around $13 million.
On August 16, the U.S. District Court for the Eastern District of Virginia granted final approval of a class action settlement resolving a purported scheme to unlawfully use tribe-owned firms to make online short-term loans and charge triple-digit interest rates. According to the memorandum of law in support of plaintiffs’ motion for preliminary approval of class action settlement and the stipulation and agreement of settlement, the district court previously approved two class settlements related to the lending enterprise. The first resulted in the purported lender and others: (i) repaying over $53 million dollars in cash; and (ii) forgiving over $380 million dollars of debt owed by consumers who took out loans with three lending companies. However, these settlements did not resolve every claim surrounding the purported scheme, and did not resolve claims with the settling defendant. The plaintiffs claimed that the settling defendant assisted the purported lender’s operations despite a corporate spinoff in May 2014, alleging that “[b]ecause many [of the purported lender’s] employees with institutional knowledge of and involvement in the company’s rent-a-tribe lending business were quickly transferred to [the settling defendant], [the purported lender] required and depended on continued involvement by [the settling defendant] and its employees in operating its rent-a-tribe lending business, which involvement was freely and often provided.” Under the terms of the preliminarily approved settlement, the settling defendant must provide monetary relief to class members totaling approximately $45 million.
On February 8, the District of Columbia attorney general announced a nearly $4 million settlement with an online lender to resolve allegations that lender marketed high-costs loans carrying interest rates exceeding D.C.’s interest rate cap. As previously covered by InfoBytes, the AG filed a complaint in 2020, claiming the lender violated the District of Columbia Consumer Protection Procedures Act (CPPA) by offering two loan products to D.C. residents carrying annual percentage rates (APR) ranging between 99-149 percent and 129-251 percent. Interest rates in D.C., however, are capped at 24 percent for loans with the rate expressed in the contract (loans that do not state an express interest rate in the contract are capped at six percent), and licensed money lenders that exceed these limits are in violation of the CPPA. According to the AG, the lender—who allegedly never possessed a money lending license in D.C.—violated the CPPA by (i) unlawfully misrepresenting it was allowed to offer loans in D.C. and failing to disclose or adequately disclose that its loans contain APRs in excess of D.C. usury limits; (ii) engaging in unfair and unconscionable practices through misleading marketing efforts; and (iii) violating D.C. usury laws.
Under the terms of the settlement, the company is required to (i) pay at least $3.3 million in restitution to refund alleged interest overcharges to D.C. borrowers; (ii) provide more than $300,000 in debt forgiveness to D.C. borrowers who would have paid future interest amounts in connection with an outstanding loan balance; and (iii) pay $450,000 to the District. According to the announcement, the company has also agreed that it “will not on its own, or working with third parties such as out of state banks, engage in any act or practice that violates the CPPA in its offer, servicing, advertisement, or provision of loans or lines of credit to District consumers.” The company is also prohibited from charging usurious interest rates, must delete negative credit information associated with its loans and lines of credit, and may not represent that it can offer loans or lines of credit in D.C. without first obtaining a D.C. money lender license.
On December 30, the U.S. District Court for the Northern District of California approved the stipulated final judgment and order against a California-based online lender (defendant) for alleged violations of fair lending regulations and a 2016 consent order. As previously covered by InfoBytes, the CFPB filed a complaint against the defendant (the third action taken against the defendant by the CFPB) for allegedly violating the terms of a 2016 consent order related to false claims about its lending program. The 2016 consent order alleged that the defendant engaged in deceptive practices by misrepresenting, among other things, the fees it charged, the loan products that were available to consumers, and whether the loans would be reported to credit reporting companies, in violation of the CFPA, TILA, and Regulation Z (covered by InfoBytes here). According to the September 8 complaint, the defendants continued with much of the same illegal and deceptive marketing that was prohibited by the 2016 consent order. Among other things, the complaint alleged that the defendants violated the terms of the 2016 consent order and various laws by: (i) deceiving consumers about the benefits of repeat borrowing; and (ii) failing to provide timely and accurate adverse-action notices, which is in violation of ECOA and Regulation B.
The settlement prohibits the defendant from: (i) making new loans; (ii) collecting on outstanding loans to harmed consumers; (iii) selling consumer information; and (iv) making misrepresentations when providing loans or collecting debt or helping others that are doing so. The order also imposes a $100,000 civil money penalty based on the defendant’s inability to pay.
On November 16, the U.S. Court of Appeals for the Fourth Circuit upheld a district court’s ruling denying defendants’ bid to dismiss or compel arbitration of a class action concerning alleged usury law violations. The plaintiffs—Virginia consumers who defaulted on short-term loans received from online lenders affiliated with a federally-recognized tribe—filed a putative class action against tribal officials as well as two non-members affiliated with the tribal lenders, alleging the lenders violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and Virginia usury laws by charging interest rates between 544 and 920 percent. The defendants moved to compel arbitration under a clause in the loan agreements and moved to dismiss on various grounds, including that they were exempt from Virginia usury laws. The district court denied the motions to compel arbitration and to dismiss, ruling that the arbitration provision was unenforceable as a prospective waiver of the borrowers’ federal rights and that the defendants could not claim tribal sovereign immunity. The district court also “held the loan agreements’ choice of tribal law unenforceable as a violation of Virginia’s strong public policy against unregulated lending of usurious loans.” However, the district court dismissed the RICO claim against the tribal officials, ruling that RICO only authorizes private plaintiffs to sue for money damages and not injunctive or declaratory relief.
On appeal, the 4th Circuit concluded that the arbitration clauses in the loan agreements impermissibly force borrowers to waive their federal substantive rights under federal consumer protection laws, and contained an unenforceable tribal choice-of-law provision because Virginia law caps general interest rates at 12 percent. As such, the appellate court stated that the entire arbitration provision is unenforceable. “The [t]ribal [l]enders drafted an invalid contract that strips borrowers of their substantive federal statutory rights,” the appellate court wrote. “[W]e cannot save that contract by revising it on appeal.” The 4th Circuit also declined to extend tribal sovereign immunity to the tribal officials, determining that while “the tribe itself retains sovereign immunity, it cannot shroud its officials with immunity in federal court when those officials violate applicable state law.” The appellate court further noted that the “Supreme Court has explicitly blessed suits against tribal officials to enjoin violations of federal and state law.” The 4th Circuit ultimately affirmed the district court’s judgment, noting that the loan agreement provisions were unenforceable because “tribal law’s authorization of triple-digit interest rates on low-dollar, short-term loans violates Virginia’s compelling public policy against unregulated usurious lending.”
The appellate court also agreed with the district court that RICO does not permit private plaintiffs to seek an injunction. “Congress’s use of significantly different language” to define the scope of governmental and private claims under RICO “compels us to conclude” that “private plaintiffs may sue only for treble damages and costs,” the appellate court stated. While plaintiffs “urge us to consider by analogy the antitrust statutes,” provisions outlined in the Clayton Act (which explicitly authorize injunction-seeking private suits) have “no analogue in the RICO statute,” the appellate court wrote, adding that “nowhere in the RICO statute has Congress explicitly authorized private actions for injunctive relief.”
On September 8, the CFPB filed a complaint against a California-based online lender (defendant) for allegedly violating the terms of a 2016 consent order related to false claims about their lending program. As previously covered by InfoBytes, the 2016 consent order alleged the defendant engaged in deceptive practices by misrepresenting, among other things, the fees charged, the loan products that were available to consumers, and whether the loans would be reported to credit reporting companies in violation of the CFPA, TILA, and Regulation Z. According to the September 8 complaint, filed in the U.S. District Court for the Northern District of California, the defendants continued with much of the same illegal and deceptive marketing that was prohibited by the 2016 consent order. Among other things, the complaint alleges that the defendants violated the terms of the consent order and various laws by: (i) deceiving consumers regarding the benefits of repeat borrowing; and (ii) failing to provide timely and accurate adverse-action notices. The Bureau seeks injunctive relief, damages, consumer restitution, disgorgement, and civil money penalties. In addition, the Bureau asks the court to permanently enjoin the defendants from committing future violations of the CFPA, the Bureau’s 2016 Consent Order, ECOA, or any provision of “Federal consumer financial law.”
On July 13, the U.S. District Court for the Northern District of California denied defendants’ motion for summary judgment in a consolidated class action concerning whether a now-defunct online lender can use tribal immunity to circumvent state interest rate caps. The plaintiffs took out short-term loans carrying allegedly usurious interest rates from entities run through several federally recognized tribes. While the defendants attempted to rely on tribal immunity as a defense, the court determined that California law applies to the plaintiffs and class members who took out loans in the state. According to the court, “California, with its strong history of prohibiting usury, has the materially greater interest in enforcing its usury laws and protecting its consumers from usurious conduct than either of the relevant [t]ribal [e]ntities whose connection to the loans—while not insignificant—was temporal and whose aims were to avoid state usury laws.” Calling tribal immunity “irrelevant,” the court added that the “claims here hinge on the personal conduct of the defendants. While that conduct is based in significant part on the services defendants personally engaged in or approved to be provided to the [t]ribes, the claims do not impede on the sovereignty of the [t]ribes where the [t]ribes are not defendants in this case and no [t]ribal [e]ntities remain.”
On July 9, the U.S. District Court for the Eastern District of Virginia granted final approval of a revised class action settlement, certifying the settlement class, approving the settlement terms, and entering final judgment regarding allegations that an operation used tribal sovereign immunity to evade state usury laws when charging unlawful interest on loans. As previously covered by InfoBytes, in March, the plaintiffs filed a class action complaint against the operation alleging, among other things, violations of the Racketeer Influenced and Corrupt Organizations Act, EFTA, and TILA. The settlement cancels roughly 71,000 loans, requires the operation to pay $86 million in damages, and caps fees at $15 million. According to the final approval, the court finds the revised settlement to be “fair, reasonable, and adequate.”
On May 20, the Connecticut Supreme Court held that a lender accused of issuing usurious consumer loans without being properly licensed is protected by tribal sovereign immunity. In 2014, the Connecticut Department of Banking initiated an enforcement action against two lenders and a tribal officer of one of the lenders, claiming the lenders violated Connecticut’s banking and usury laws by making high-interest consumer loans over the internet without a license. The commissioner issued cease-and-desist orders and imposed civil penalties on the lenders. The lenders filed a motion in Connecticut Superior Court to dismiss the administrative proceedings for lack of jurisdiction, claiming they were arms of a federally recognized tribe and entitled to tribal sovereign immunity. The Superior Court vacated the orders against the lenders and remanded the case for an evidentiary hearing on whether the lenders are entitled to sovereign immunity.
The Connecticut Supreme Court reversed in part the Superior Court’s order, finding that the lower court should have applied the “Breakthrough factors” adopted by the U.S. Court of Appeals for the Fourth, Ninth, and Tenth Circuits to determine whether the lenders were arms of the tribe. These factors include analysis of (i) “the method of creation” of the entities; (ii) the stated purpose of the entities; (iii) “the structure, ownership, and management of the entities,” which includes the amount of control the tribe has over them; (iv) the tribe’s intent with respect to extending its sovereign immunity to the entities; and (v) “the financial relationship between the tribe and the entities.” Applying these factors, the Connecticut Supreme Court found that one of the lenders was entitled to sovereign immunity because the lender was created under tribal law, is controlled by directors appointed by the tribal council for the purpose of promoting tribal economic development and welfare, and there was a “significant financial relationship” between the tribe and the lender. With respect to the other lender, the court found that there was insufficient evidence to show that it is an arm of the tribe and that further proceedings were necessary to determine its right to sovereign immunity.
On April 23, the U.S. District Court for the Northern District of California granted class certification to residents who received loans from an online lender, allowing them to pursue class claims based on allegations they were charged interest rates that exceeded state limits for lenders claiming tribal immunity. The class of borrowers include California residents who collected loans from an Oklahoma-based tribe, and California residents who received loans from a Montana-based tribe before June 2016. The district court held that the proposed class met the requirements for certification, including that the borrowers brought a common, predominant claim, and found that data from a separate settlement, which contained defendant’s consumer-level account information, could be used to establish damages. Although the defendants highlighted an error in the data regarding a plaintiff's residency, the court held that such an error was not substantial enough to undermine the entire data set, because “[d]espite the error … [the] consumer-level data for each transaction provides a fair basis for identifying the scope of the class and aggregate damages for the California class.”
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- John R. Coleman to participate in a roundtable on current topics in administrative law at the C. Boyden Gray Center for the Study of the Administrative State at George Mason University
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- Max Bonici will moderate a panel on “Enforcement risk and other regulatory and compliance issues related to crypto and digital assets” at the American Bar Association’s 2022 Annual Meeting
- John R. Coleman to provide a “CFPB Update” at MBA’s 2022 Regulatory Compliance Conference
- Amanda R. Lawrence to discuss “The shifting data privacy and data protection landscape” at MBA’s 2022 Regulatory Compliance Conference
- Jeffrey P. Naimon to provide an “Update on key fair lending cases and the CRA and UDAAP rules” at MBA’s 2022 Regulatory Compliance Conference
- Benjamin W. Hutten to discuss “Fundamentals of financial crime compliance” at the Practicing Law Institute
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- Elizabeth E. McGinn, Benjamin W. Hutten, and James C. Chou to discuss “The Evolving Regulatory Landscape: Third-party and cyber risk management” at the 2022 mWISE Conference
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