November 25, 2022

Trump judges demand consumers aggrieved by ‘payday’ loans drop class action, arbitrate individual claims: judges upheld, fears upheld


Judges confirmed, fears confirmed”Is a series of blogs documenting the damaging impact of President Trump’s judges on the rights and freedoms of Americans. Cases in the series can be found by number and by judge at this connect.

Trump Ninth Circuit Judge Danielle Forrest, joined by Trump Judge Lawrence VanDyke, overturned district court and ruled consumers harmed by short-term, high-interest ‘payday’ loans could not pursue recourse collective for fraud and related violations, but were instead to at least initially submit their individual claims for arbitration as requested by the defendants. The September 2021 decision was in Brice v Plain Green LLC.

As documented by the Consumer Financial Protection Bureau (CFPB) and others, payday loans are high-cost loans made to low-income, low-credit borrowers who often encounter questionable practices and subsequent financial problems. Although many states regulate payday loans through methods such as prohibiting exorbitant or “usurious” interest and other measures, the limited liability companies and others that provide such loans have sought to evade the regulation. , through methods such as the use of the Internet and a technique called ‘rent-a-tribe’, in which ‘tribal shell companies, acting as fronts for non-Indian payday lenders, charge borrowers exorbitant interest And claim that they are subject only to tribal law, not national or federal law. Loan agreements generally provide that any dispute is to be arbitrated individually by an “independent third party” based largely on tribal law. A number of California consumers have fallen victim to these practices and have filed a class action lawsuit against Think Finance LLC and its owners and investors, claiming that the defendants used these tribal shell companies to make inappropriate payday loans with low rates. interest of more than 400% per year.

As in many cases, several defendants attempted to stop the class action and force individual arbitration of the claims of each victim under an arbitration clause in the loan agreements. Following the lead of most other courts in considering such lawsuits, the district court dismissed the petitions to force arbitration. The defendants appealed.

In a 2-1 decision, Justices Trump Forrest and VanDyke reversed, holding that the plaintiffs were required to submit each of their individual claims to arbitration and that they could only bring a broader legal action if the arbitrators they themselves decided that it was inappropriate for the arbitration agreement to delegate to them the question of whether disputes go to arbitration. Based on their interpretation of the Supreme Court’s decisions on arbitration of cases involving consumers suing companies, Trump justices ruled that the provision of the agreement “delegating to an arbitrator” the question of whether the The arbitration agreement was valid, and that the district court should “compel the parties to proceed to arbitration”. Only if the arbitrator concludes that “the arbitration agreement is unenforceable,” Forrest continued, can consumers “go back to court” and seek a broader remedy.

Judge William Fletcher was a firm dissenter. He noted that the majority decision contradicts “all of our sister circuits that have addressed” the matter, including the second, third and fourth circuits, in holding that the delegation provision was valid. Based on a careful analysis of these rulings, Supreme Court rulings, and the language of loan agreements, Fletcher determined that the delegation clause and the arbitration agreement were invalid, especially since they function as a “prospective waiver” by borrowers. right to seek redress for violation of state and federal laws protecting consumer rights. Fletcher concluded that the effect of the Forrest-VanDyke decision was to “inappropriately force vulnerable borrowers into arbitration,” despite the fact that other circuits had “consistently condemned” such arbitration agreements, ” including those used by the same lenders as in this case. “

Therefore, due to the ruling of Justices Trump Forrest and VanDyke, California borrowers will not be able to seek effective redress against the inappropriate payday lending practices in the case, and a troubling precedent has been set that will even further than previous cases in forcing consumers to resort to ineffective individual arbitration in disputes with businesses. The case further demonstrates the need, as part of our fight for our courts, to swiftly uphold the Biden candidates in the Ninth Circuit and all of our federal courts to counterbalance the views of those Trump judges and show respect for consumer rights. In fact, as explained elsewhere in this blog, President Biden recently submitted the nominations of three “highly qualified judicial appointees” to the Ninth Circuit as part of the effort to “restore our federal courts.”