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  • District Court certifies class challenging online lender’s rates

    Courts

    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.”

    Courts Tribal Lending Usury Class Action Online Lending Consumer Finance

  • Minnesota AG settles with student debt relief company

    State Issues

    On April 13, the Minnesota attorney general announced a settlement with a California-based student loan debt relief company that allegedly: (i) collected illegal fees from customers; (ii) misrepresented its services to cease operations in Minnesota by not providing full refunds to its Minnesota consumers; and (iii) violated Minnesota’s Debt Services Settlement Act, Prevention of Consumer Fraud Act, and Uniform Deceptive Trade Practices Act. The AG alleged that the company “falsely promised consumers student-loan forgiveness, when only the federal government can forgive federal student loans.” Under the terms of the settlement, the company is required to pay the AG $18,190.50, which will be used to provide full restitution to consumers. The settlement also requires the company to cease operations in Minnesota until it becomes registered as a debt-settlement service provider.

    State Issues State Attorney General Courts Student Lending Debt Relief Usury Settlement

  • PA AG settles with collector over payday loan scheme

    State Issues

    On April 9, the Pennsylvania attorney general announced settlements with the former CEO of a since-dissolved lender and a debt collector to resolve claims that the collector charged borrowers interest rates as high as 448 percent on loans and lines of credit. The AG alleged that the former CEO “participated in, directed and controlled” business activities related to the allegedly illegal online payday lending scheme, while the debt collector collected more than $4 million related to Pennsylvania consumers’ loan accounts. The terms of the settlement require the individual defendant to comply with relevant consumer protection laws and limits the individual defendant’s ability to work in the consumer lending industry in Pennsylvania for the next nine years. Additionally, the individual defendant is required to pay the Commonwealth $3 million.

    The AG’s office noted that the U.S. District Court for the Eastern District of Pennsylvania also approved a settlement with the debt collector, which requires the company to comply with relevant consumer protection laws and, among other things, undertake the following actions: (i) ensure that all acquired debts, for which it attempts to collect, comply with applicable laws and regulations; (ii) cancel all balances on applicable accounts, take no further action to collect debts allegedly owed by Pennsylvania consumers on these accounts, and notify consumers of the cancellations; (iii) “refrain from engaging in [c]ollections on any [d]ebts involving loans made over the internet by [n]on-bank lenders that violate Pennsylvania laws,” including its usury laws; and (iv) will not sell, re-sell, or assign debt related to applicable accounts, including accounts subject to a previously-negotiated nationwide class action settlement agreement and Chapter 11 bankruptcy plan. Previous InfoBytes coverage related to the payday lending scheme can be found here, here, and here.

    State Issues Courts State Attorney General Interest Rate Usury Consumer Finance Settlement Enforcement Debt Collection Payday Lending

  • Court signals approval of tribal lending settlement

    Courts

    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.

    Courts Class Action Settlement Tribal Lending Online Lending Consumer Finance Usury RICO TILA EFTA

  • NY AG obtains $53 million judgment against company selling debt relief on student loans

    Courts

    On March 30, the U.S. District Court for the Southern District of New York entered a default judgment and order against a student debt relief company, which requires the payment of $53 million in statutory penalties, after the defendant failed to respond to a suit filed by the New York attorney general. The AG alleged that the defendant sold debt-relief services to student loan borrowers that violated several laws, including the state’s usury, banking, credit repair, and telemarketing laws, and the federal Credit Repair Organizations Act and the Telemarketing Sales Rule. In addition to the $53 million penalty, the order permanently bans the defendant from engaging in debt-relief activities, collecting on loans related to its debt relief products or services, or using any personal information it has for student borrowers. The court also ordered the defendant to turn over financial records and authorized the AG’s office to seek additional restitution and disgorgement on the basis of those records. The order follows a 2020 stipulated judgment entered against other defendants in the action, which included a $5.5 million judgment (covered by InfoBytes here).

    Courts State Issues State Attorney General Student Lending Debt Relief Usury Telemarketing Sales Rule

  • 6th Circuit: Delegation clause in arbitration agreement keeps case out of court

    Courts

    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.

    Courts Appellate Sixth Circuit Arbitration Tribal Lending Predatory Lending State Issues Usury

  • Illinois legislature passes 36 percent rate cap for all consumer loans

    State Issues

    On January 13, the Illinois legislature unanimously passed the “Predatory Loan Prevention Act,” (available in House Amendment 3 to SB 1792), which would prohibit lenders from charging more than 36 percent APR on all consumer loans. Specifically, the legislation would apply to any non-commercial loan, including closed-end and open-end credit, retail installment sales contracts, and motor vehicle retail installment sales contracts. For calculation of the APR, the legislation would require lenders to use the system for calculating a military annual percentage rate under the Military Lending Act. Any loan made in excess of 36 percent APR would be considered null and void and no entity would have the “right to collect, attempt to collect, receive, or retain any principal, fee, interest, or charges related to the loan.” Additionally, each violation would be subject to a fine up to $10,000.

    State Issues Consumer Lending APR Military Lending Act Usury Interest Rate State Legislation

  • Court denies arbitration bid in tribal loan usury action

    Courts

    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.”

    Courts Arbitration Tribal Lending Debt Collection FDCPA State Issues Usury

  • District court: Usury claims preempted by National Bank Act

    Courts

    On September 21, the U.S. District Court for the Western District of New York dismissed allegations against two entities affiliated with a national bank, and a trust acting as trustee of one of the entities, ruling that a plaintiff’s “state-law usury claims are expressly preempted by the [National Banking Act].” The court noted that, “[e]ven before the OCC issued its rule clarifying that interest permissible before a transfer remains permissible after the transfer, [the plaintiff’s] claims would have been preempted” because the national bank “continues to possess an ‘interest in the account.’” The plaintiff contended he was charged usurious interest rates that exceeded New York’s interest rate cap on unsecured credit card loans originated by the national bank. According to the opinion, one of the entities contracted with the bank to service the credit card loans, with the bank retaining ownership of the accounts. The plaintiff argued that the U.S. Court of Appeals for the Second Circuit’s decision in Madden v. Midland Funding LLC (covered by a Buckley Special Alert) supported his claims against the affiliated entities, but the court disagreed, ruling that the national bank retained interest in the loans, which included the right to “change various terms and conditions” as well as interest rates.

    Courts Credit Cards Usury Interest National Bank Act Madden

  • District Court dismisses usury claim against New York lender

    Courts

    On August 12, the U.S. District Court for the Western District of New York dismissed usury claims against a lender, concluding that lenders licensed in New York can charge interest rates up to 25 percent on loans under $25,000. According to the opinion, a consumer received a check in the mail in the amount of $2,539 from a licensed lender under Article IX of New York Banking Law, with terms requiring repayment at an annual interest rate of 24.99 percent, if the consumer cashed the check. The consumer cashed the check, agreeing to the loan terms. After failing to repay the debt in full, the consumer filed a complaint against the lender asserting various claims, including that the interest rate is unenforceable under New York General Obligations Law (GOL) § 5-511 because it exceeds 16 percent. The lender moved to dismiss the action.

    The court agreed with the lender on the usurious claim, concluding that as a licensed lender in New York, the lender is “authorized to extend loans of $25,000 or less with interest rates up to 25[percent]” which is “the limit set by New York’s criminal usury statute, New York Penal Law § 190.40.” The court cited to NYDFS interpretations, stating that unlicensed nonbank lenders may not charge more than a 16 percent annual interest rate, but lenders that “obtain an Article IX license [] may charge interest up to 25[percent] per annum on the small loans.” Because the lender was licensed under Article IX in the state of New York, the lender “was permitted to loan $2,539.00 to [the consumer] at an agreed-upon annual interest rate of 24.99[percent] without violating GOL § 5-511.”

    Courts State Issues Usury Interest Rate Licensing NYDFS

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