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- 9th circuit splits from three circuits in tribal internet payday loan case
- The borrowers alleged they had to pay interest rates of over 400%
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(Reuters) – A divided federal appeals court ruled on Thursday that a private investor in an online payday loan company could force borrowers to arbitrate claims they were billed at illegal annual interest rates of more than 400% via a -tribe “.
The 9th U.S. Court of Appeals 2-1 decision for Haynes Investments, which provided capital to lender Think Finance, deviated from rulings of three other appeals courts which declined to require a arbitration in similar cases of tribal internet payday loans.
US Circuit Judge William Fletcher noted this fact in a clearly worded dissent, saying the first reading of the majority of payday loan arbitration agreements “will unduly force vulnerable borrowers into arbitration.”
The majority said a provision of the arbitration agreement contained in borrowers’ loan documents that delegated to an arbitrator, rather than a court, the ability to decide whether claims should be arbitrated was enforceable.
The borrowers had argued that the delegation provision and the agreement as a whole were inapplicable, as they required consumers to waive any claims they had made under federal law by dictating that tribal law would govern any damage. or recourse.
The ruling stems from a class action lawsuit proposed in 2018 by California consumers who said they borrowed from entities belonging to two Native American tribes who in turn received funding from Think Finance.
They accused the lender, its owner and investors such as Haynes of engaging in a “rent-a-tribe” program, in which loans were made by the consumer to evade consumer protection laws. through Native American tribes who could claim sovereign immunity.
The lawsuit charged them with violating federal racketeering law and California’s interest rate limits. Haynes requested binding arbitration, but a judge found the agreement effectively waived borrowers’ rights to pursue federal claims.
U.S. Circuit Judge Danielle Forrest, writing for the majority, disagreed, saying nothing in the contract prevented borrowers from arguing that the deal was unenforceable under federal law before the referee, although she admits that it may sound “absurd” and that a referee may find that they cannot.
“While courts may find arbitration agreements unpleasant or unfair in some contexts, especially where they limit consumers’ rights and remedies, Congress and the Supreme Court have asked us to respect arbitration agreements like any other contractual arrangement, âshe wrote.
Forrest and US circuit judge Lawrence VanDyke, who joined his decision, were appointed by former Republican President Donald Trump. Fletcher was a candidate for former Democratic President Bill Clinton.
Richard Scheff, an attorney for Armstrong Teasdale who argued for Haynes, said he was “grateful for the careful consideration of this matter by the entire panel.”
Matthew Wessler, a borrower lawyer at Gupta Wessler, declined to comment.
Think Finance filed for bankruptcy in 2017. It was the subject of lawsuits by borrowers and the attorney general of Pennsylvania at the time, and the US Consumer Financial Protection Bureau also sued Think Finance later in the year.
Several cases have since been settled nationwide against Think Finance and other defendants, resulting in settlements worth approximately $ 100 million.
The 2nd, 3rd and 4th Circuits have refused to compel arbitration in cases involving similar internet tribal payday loans involving provisions delegating the issue of enforcement to arbitrators, finding these clauses invalid.
The case is Brice v. Haynes Investments, 9th U.S. Court of Appeals, No. 19-15707.
For the Complainants: Matthew Wessler of Gupta Wessler
For Haynes Investments: Richard Scheff of Armstrong Teasdale
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