Trump judges demand consumers harmed by ‘payday’ loans drop class action and arbitrate individual claims: judges upheld, fears upheld
“Confirmed judges, confirmed fearsis a series of blogs documenting the detrimental impact of President Trump’s judges on the rights and freedoms of Americans. Cases in the series can be found by issue and by judge at this link.
Trump Ninth Circuit Judge Danielle Forrest, joined by Trump Judge Lawrence VanDyke, quashed a district court and ruled that consumers harmed by short-term, high-interest payday loans cannot could not bring a class action for fraud and related violations, but should instead at least initially submit their individual claims to 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 given to low-income, low-credit borrowers who often face questionable practices and subsequent financial problems. Although many states regulate payday loans through methods such as prohibiting exorbitant or “usurious” interest and other measures, LLCs and others who provide such loans have sought to evade regulation. , through methods such as the use of the Internet and a technique called “rent-a-tribe”, in which “tribal front companies, acting as fronts for non-Indian payday lenders, charge borrowers exorbitant interest and claim that they are only subject to tribal law, not federal or state law. Loan agreements typically provide that any disputes are to be arbitrated individually by an “independent third party” based largely on tribal law. A number of California consumers have been victims of 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 front companies to make improper payday loans with rates of interest of more than 400% per annum. year.
As in many such cases, several defendants attempted to stop the class action and force individual arbitration of each victim’s claims under an arbitration clause in the loan agreements. Following the lead of most other courts that have considered such lawsuits, the district court denied motions to compel arbitration. The defendants appealed.
In a 2-1 decision, Justices Trump Forrest and VanDyke vacated, ruling that plaintiffs were required to submit each of their individual claims to arbitration and that they could only pursue a broader lawsuit if the arbitrators themselves themselves decided that it was inappropriate for the arbitration agreement to delegate to them the question of whether disputes are submitted to arbitration. Based on their interpretation of Supreme Court rulings on arbitration of cases involving consumers suing corporations, the Trump justices ruled that the agreement’s provision “delegating to an arbitrator” the issue of whether the arbitration agreement was valid, and that the district court must “compel the parties to arbitrate”. Only if the arbitrator finds “the arbitration agreement is unenforceable,” Forrest continued, can consumers “return to court” and seek broader relief.
Judge William Fletcher strongly dissented. He noted that the majority decision contradicts “all of our sister circuits who have addressed” the issue, including the Second, Third and Fourth Circuits, in finding the delegation provision to be valid. Based on a careful analysis of these decisions, Supreme Court decisions and the wording of the loan agreements, Fletcher determined that the delegation clause and the arbitration agreement were invalid, especially since they function as a “prospective waiver” of borrowers. right to seek redress for violations of state and federal laws protecting consumer rights. Fletcher concluded that the effect of the Forrest-VanDyke decision was to “wrongfully force vulnerable borrowers into arbitration”, despite the fact that other circuits had “consistently condemned” such arbitration agreements, “including including those used by the same lenders as in this case.”
Following Justices Trump Forrest and VanDyke’s decision, California borrowers will therefore not be able to seek effective relief from improper payday lending practices in the case, and a troubling precedent has been set that still goes. further than past 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 quickly confirm Biden’s nominees to the Ninth Circuit and all of our federal courts to balance the opinions of these Trump judges and show respect for the consumer rights. In fact, as explained elsewhere in this blog, President Biden recently submitted the nominations of three “highly qualified judicial nominees” to the Ninth Circuit as part of the effort to “restore our federal courts.”