March 2000 / More Indiana Payday Lenders Sued

MORE INDIANA PAYDAY LENDERS SUED

The Chicago law firm of Edelman, Combs & Latturner has filed class action lawsuits against four more Indiana "payday lenders," Rarick's Eazy Cash, American Payday Loans, Cash in a Flash, and Custom Financial Company.

Similar lawsuits are pending against Ace Cash Express, E-Z Payday Loans, Advance America, Hoosier Check Cashing of Ohio, Ltd., Check 'n Go of Indiana, Inc., Fast Cash USA, Check Into Cash, All Checks Cashed, and GRT, Inc. (A-1 Payday Loans and Castleton Cash Advance) in the federal courts in Indianapolis, South Bend and Hammond.

The complaints in these cases allege violation of the Truth in Lending Act and Indiana law in connection with "payday loans."

One of the Indiana laws alleged to have been violated is the Indiana Uniform Consumer Credit Code. The Code (i) prohibits lenders from charging interest of more than 36% interest, (ii) allows a flat fee not exceeding $33, and (iii) prohibits lenders from using multiple agreements to obtain more finance charges than would otherwise be permitted.

The complaints also allege violation of another Indiana statute that makes it unlawful to charge more than 72% interest in any case. Ind. Code, 35-45-7-2. This statute was the subject of the Attorney General's recent opinion.

Finally, the lawsuits allege failure to comply with the disclosure requirements of the federal Truth in Lending Act and the Indiana Uniform Consumer Credit Code.

Edelman, Combs & Latturner concentrates in the representation of consumers against lenders, car dealers, debt collectors, and other businesses. The firm has sued numerous "payday lenders" in Illinois, Indiana and elsewhere.

March 7, 2000

SECTION: Vol. 3, No. 16

LENGTH: 907 words

BODY: The U.S. District Court for the District of Delaware recently denied a motion to compel arbitration citing an "inherent conflict" between compelling arbitration and the underlying purposes of the Truth in Lending Act and the Electronic Funds Transfer Act. (Johnson v. Tele-Cash Inc., et al., No. 99-104-GMS (D. Del. 12/29/99).)

Terry Johnson filed a class action lawsuit against Tele-Cash Inc. and the County Bank of Rehoboth Beach, Del., in federal court for violations of the TILA and the EFTA. Johnson alleged that the creditors failed to properly disclose the "excessively high rates of interest" associated with their short-term loans and required borrowers to consent to an improper electronic fund transfer scheme to obtain the loans. Because the loan agreements contained an arbitration clause whereby all claims or disputes must be resolved by binding arbitration, the creditors moved the District Court to stay its proceedings pending the outcome of arbitration. The court denied the creditors' motion.

The TILA

The court examined both the text and the legislative history in determining that arbitration would eviscerate the TILA's purpose. The court stated, "The intended purpose of the TILA was 'to encourage class actions in the truth-in-lending context because of the apparent inadequacy of the Federal Trade Commission's enforcement resources and because of a continuing problem of minimum compliance with the Act on the part of creditors.'" Agreeing with Johnson that Congress expressed a clear intent to guarantee class relief under the TILA, the court found that an order compelling arbitration would "contravene the express congressional intent to 'encourage the use of class actions as an important tool for enforcing Truth in Lending.'" Because an arbitrator cannot award class-wide relief, the court held the loan agreements' "boilerplate" arbitration clause to be unenforceable.

Focusing on the TILA's legislative history, the court quoted another District Court's impression as follows: "The possibility of class-action exposure is essential to the prophylactic intent of the Act and is necessary to elevate truth-in-lending lawsuits 'from the ineffective nuisance category to the type of suit which has enough sting to insure that management will strive with diligence to achieve compliance.'"

Finding that Congress intended class actions to provide creditors with meaningful incentive to comply with the law, the court held that class actions served the act's remedial and deterrent functions. Although it recognized that the act did not create a statutory right to bring class actions, the court held that there was an "inherent conflict" between compelling arbitration and the underlying purposes of the TILA. PAGE 3 Consumer Financial Services Law Report March 7, 2000

The EFTA

The court denied the creditors' request to subject the EFTA claims to arbitration because the EFTA contains language similar to the TILA. Specifically, the EFTA contains a cap on class action damages that is "virtually identical" to that provided under the TILA. Regarding the TILA, the court found that Congress enacted the cap to encourage federal courts to certify class actions in TILA lawsuits so that a "workable structure" for the private enforcement of the TILA through class actions could be provided. Although the court found no legislative history as to the class action cap under the EFTA, the court presumed that Congress was trying to encourage courts to certify class actions under the EFTA as well and presumably for the same reasons. Thus, similar to the TILA claims, the court held that there was an "inherent conflict" between the underlying purposes of the EFTA and compelling arbitration.

Dismissal of claims

In addition to their motion to stay proceedings pending arbitration, the creditors moved the court in the alternative to dismiss Johnson's claims. The creditors argued that the TILA claims failed as a matter of law because any alleged violations were mere technicalities at best and Johnson failed to allege any injuries as a result of the alleged violations. Regarding the EFTA, the creditors similarly argued that the claims were inadequately pled. The court disagreed on both counts.

The District Court stated that Congress amended the TILA to discourage creditors from providing the "very type" of disclosures contained in the loan agreements at issue in this case. Noting that "hyper-technicality reigns" in TILA lawsuits, the court held that the creditors' failure to disclose the annual percentage rate and finance charge more conspicuously than other terms in connection with the transactions was a sufficient basis for a TILA claim. As for damages resulting from the alleged violations, the court stated that under the TILA, private parties may recover its statutory penalties regardless of a lack of actual damages. Finally, regarding the EFTA claims, the court held that Johnson sufficiently stated a claim regarding "pre-authorized electronic fund transfers" recurring "at substantially regular intervals."

Judge Gregory M. Sleet delivered the opinion of the court.

William L. O'Day in Wilmington, Del., and Daniel A. Edelman, Kathleen M. Combs, James O. Latturner, Sheila A. O'Loughlin and Heather C. Sullivan of Edelman, Combs & Latturner in Chicago represented Johnson. James D. Griffin and David R. Hackett of Griffin & Hackett P.A. in Georgetown, Del., and Walter Weir in Philadelphia represented the creditors in the action.

LANGUAGE: ENGLISH

LOAD-DATE: March 13, 2000

March 20, 2000, Monday

SECTION: Appellate Summary; Pg. 1

LENGTH: 441 words

HEADLINE: Collection law - debtor's confusion

SYLLABUS: Plaintiff who alleged that collection agency's dunning letter was confusing and violated Fair Debt Collection Practices Act was entitled to present empirical evidence that might show that letter was confusing; trial court therefore erred in dismissing complaint without considering such evidence.

BODY: The 7th U.S. Circuit Court of Appeals has reversed a ruling by then U.S. District Judge Ann Claire Williams, who has since joined the appeals bench.

On March 18, 1998, plaintiff Jewel Marshall-Mosby received a one-page collection letter from defendant Corporate Receivables Inc., and in July 1998, she filed a complaint against the collection agency claiming that the form letter she received violated the Fair Debt Collection Practices Act.

The trial granted the defendant's motion to dismiss. The judge said the defendant's collection letter did not create the confusion and contradiction that other collection letters struck down in this court have" and even the most unsophisticated consumer would know that other options besides immediate payment exist."

On appeal, the plaintiff did not allege that the defendant's collection letter omitted the required validation notice. Instead, she claimed that the additional language in the letter contradicts and overshadows" the validation notice, therefore violating the debt-collection statute.

The 7th Circuit agreed and reversed. The appeals court said it had held that a violation of the statute occurs when a dunning letter is confusing to the unsophisticated reader, even if the letter technically complies with the statute by including the required validation notice, which entitles the debtor to have the debt verified by the creditor.

Debt collectors may not defeat the statute's purpose by making the required disclosures in a form or within a context in which they are unlikely to be understood by the unsophisticated debtors who are the particular objects of the statute's solicitude," the appeals court said. In analyzing dunning letters under the federal law, the critical question is whether a letter is confusing, the court said.

The appeals court said that under its Dec. 21 decision in Walker v. National Recovery Inc., that confusion is a question of fact, not one of law, so that plaintiffs are entitled to present empirical evidence that might show the dunning letter in question to be confusing in the eyes of the unsophisticated consumer. PAGE 12 Chicago Daily Law Bulletin, March 20, 2000

Therefore, the appeals court said, the plaintiff's complaint in this case was legally sufficient because it was possible to imagine evidence consistent with the allegations of the complaint that would establish confusion. The court remanded the matter for further proceedings.

Jewel Marshall-Mosby v. Corporate Receivables Inc., et al., No. 99-1217. Judge Michael S. Kanne wrote the court's opinion with Judges William J. Bauer and Terence T. Evans concurring. Released Feb. 22, 2000. (7 pages)