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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.”
On April 7, the U.S. District Court for the Eastern District of Virginia preliminarily approved a revised class action settlement concerning allegations that an operation used tribal sovereign immunity to evade state usury laws when charging unlawful interest on loans. 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 preliminarily-approved revised settlement would cancel approximately 71,000 class member loans, including a group of loans sold by the operation to another investor. It would also require the operation to pay $86 million, including an additional $21 million payment from the individual defendant, and cap attorneys’ fees for class counsel at $15 million. The operation would also be required to comply with several non-monetary provisions, including (i) requesting that negative credit reporting information concerning the loans be deleted; and (ii) ensuring that key loan terms, including interest rates and payment schedules to borrowers, are disclosed in loan agreements in compliance with federal law.
On March 4, the U.S. Court of Appeals for the Sixth Circuit determined that a district court “exceeded its authority” when it ruled that an arbitration agreement was unenforceable in a case disputing an allegedly predatory loan. According to the 6th Circuit opinion, the plaintiff claimed she was the victim of an illegal “rent-a-tribe” scheme when she accepted a $1,200 loan with an interest rate exceeding 350 percent from an online lender owned and organized under the laws of a federally recognized Montana tribe. The loan contract the plaintiff signed included a provision stating that “‘any dispute. . .related to this agreement will be resolved through binding arbitration’ under tribal law, subject to review only in tribal court.” The plaintiff filed suit, alleging, among other things, that the arbitration agreement violated Michigan and federal consumer protection laws. The defendant moved to compel arbitration, arguing that because the plaintiff agreed to arbitrate issues regarding “the validity, enforceability, or scope” of the arbitration agreement through a “delegation clause,” the court should stay the case and compel arbitration. The district court denied the defendant’s motion, “maintaining that the enforceability of the arbitration agreement ‘has already been litigated, and decided against [the defendant], in a similar case from the 2nd Circuit.’” The defendant appealed, arguing that the district court disregarded the delegation clause.
On remand, the 6th Circuit stated that its decision does not bear on the merits of the case but merely addresses who resolves the plaintiff’s challenges to the arbitration agreement. “It’s not even about whether the parties have to arbitrate the merits. Instead, it’s about who should decide whether the parties have to arbitrate the merits,” the appellate court wrote. Focusing on the delegation clause—which states that the parties agreed that an arbitrator, and not the court, would decide “gateway arbitrability issues”—the appellate court held that “[o]nly a specific challenge to a delegation clause brings arbitrability issues back within the court's province,” which was a challenge that the plaintiff failed to make.
On December 10, the U.S. District Court for the Middle District of Florida denied a motion to compel arbitration filed by a collection company and its chief operations officer (collectively, “defendants”), ruling that the arbitration agreements are “unconscionable” and therefore “unenforceable” because of the conditions under which borrowers agreed to arbitrate their claims. According to the order, the plaintiffs received lines of credit from an online lending company purportedly owned by a federally recognized Louisiana tribe. After defaulting on their payments, the defendants purchased the past-due accounts and commenced collection efforts. The plaintiffs sued, alleging the defendants’ collection efforts violated the FDCPA and Florida’s Consumer Collection Practices Act (FCCPA) because the defendants knew the loans they were trying to collect were usurious and unenforceable under Florida law. The defendants moved to compel arbitration based on the arbitration agreement in the tribal lender’s line-of-credit agreement, and filed—in the alternative—motions for judgment on the pleadings.
The court ruled, among other things, that while the plaintiffs agreed to arbitrate all disputes when they took out their online payday loans, the “proposed arbitration proceeding strips Plaintiffs of the ability to vindicate any of their substantive state-law claims or rights,” and that, moreover, “the setup is a scheme to hide behind tribal immunity and commit illegal usury in violation of Florida and Louisiana law.” The court also granted in part and denied in part the defendants’ motions for judgment on the pleadings. First, in denying in part, the court ruled that because the “tribal choice-of-law provision in the [tribal lender’s] account terms is invalid,” the plaintiffs’ accounts are subject to Florida law. Therefore, because Florida law is applicable to the plaintiffs’ accounts, they present valid causes of action under the FDCPA and FCCPA. The court, however, ruled that the plaintiffs seemed to “conflate Defendants’ communications to facilitate the collection of the outstanding debts with a communication demanding payment,” pointing out that FDCPA Section 1692c(b) only punishes that latter, which “does not include communications to a third-party collection agency.”
On July 21, the U.S. Court of Appeals for the Fourth Circuit affirmed a district court’s denial of defendants’ motion to compel arbitration, holding that the arbitration agreements operated as prospective waivers of federal law and were thus unenforceable. According to the opinion, a group of Virginia borrowers filed suit against two online lenders owned by a sovereign Native American tribe and their investors (collectively, “defendants”). In the action, the plaintiffs contended that they obtained payday loans from the defendants, which included annual interest rates between 219 percent to 373 percent—an alleged violation of Virginia’s usury laws and the Racketeer Influenced and Corrupt Organizations Act (RICO). The defendants moved to compel arbitration, which the district court denied, concluding that choice-of-law provisions—such as “‘[t]his agreement to arbitrate shall be governed by Tribal Law’; ‘[t]he arbitrator shall apply Tribal Law’; and the arbitration award ‘must be consistent with this Agreement and Tribal Law’”—prospectively excluded federal law, making them unenforceable.
On appeal, the 4th Circuit agreed with the district court despite a “strong federal policy in favor of enforcing arbitration agreements.” Most significantly, the appellate court rejected the defendants’ assertion that the choice-of-law provisions did not operate as a prospective waiver. The court noted that while the choice-of-law provisions “do not explicitly disclaim the application of federal law, the practical effect is the same,” as they limit an arbitrator’s award to “remedies available under Tribal Law,” effectively preempting “the application of any contrary law—including contrary federal law.” Moreover, the appellate court concluded that under the arbitration agreement, borrowers would be unable to effectively pursue RICO claims against the defendants, and more specifically, would be unable to “effectively vindicate a federal statutory claim for treble damages” under RICO. Thus, because federal statutory protections and remedies are unavailable to borrowers under the agreement, the appellate court concluded the entire agreement is unenforceable.
On July 14, the U.S. Court of Appeals for the Third Circuit affirmed a district court’s denial of defendants’ motion to compel arbitration, holding that an arbitration clause contained within an online tribal lender’s payday loan agreement impermissibly strips borrowers of their right to assert statutory claims and is therefore unenforceable. Specifically, because this “limitation constitutes a prospective waiver of statutory rights,” the lender’s arbitration agreement “violates public policy and is therefore unenforceable.” The plaintiffs filed a putative class action contending that they obtained payday loans from the lender, which included annual interest rates between 496.55 percent to 714.88 percent—an alleged violation of the Racketeer Influenced and Corrupt Organizations Act (RICO) and various Pennsylvania consumer protection laws. The defendants moved to compel arbitration. The district court denied the defendants’ arbitration request, ruling that “the arbitration agreement was unenforceable because the arbitrator is permitted only to consider tribal law,” and, therefore, the arbitrator could not consider any of plaintiffs’ federal or state law claims. The 3rd Circuit agreed, rejecting, among other things, the defendants’ argument that the plaintiffs could bring RICO-like claims under tribal law and possibly receive “similar relief.” The appellate court noted: “The question is whether a party can bring and effectively pursue the federal claim—not whether some other law is a sufficient substitute.”
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable