Judge: Payday Loan Firms Must Submit to Class Action Arbitration
In an order dated Dec. 12, Maass ruled that class action waivers signed by thousands of people who obtained payday loans through Check 'n Go of Florida Inc., were unconscionable. Maass wrote that "the chance that [the named plaintiff] could have obtained competent counsel absent the possibility of class action status ... is effectively zero."

 Judge: Payday Loan Firms Must Submit to Class Action Arbitration

In an order dated Dec. 12, Maass ruled that class action waivers signed by thousands of people who obtained payday loans through Check 'n Go of Florida Inc., were unconscionable. Maass wrote that "the chance that [the named plaintiff] could have obtained competent counsel absent the possibility of class action status ... is effectively zero."

Ted Leopold, a partner at Ricci Leopold of Palm Beach Gardens and one of the plaintiffs attorneys in the case, called the ruling a "sign that everyone who is preyed upon will have their day in court or arbitration. The industry cannot take advantage of disadvantaged people."

John Hart, attorney for the Cincinnati-based Check 'n Go, declined to comment on Maass' ruling other than to say he will appeal before the Jan. 11 deadline. Hart is a partner at Carlton Fields in West Palm Beach. Amy Brown of Squire Sanders & Dempsey's Washington, D.C., office, is co-counsel in the case.

Check 'n Go required its customers, including plaintiff Donna Reuter, to sign a contract that mandated binding arbitration and prohibited class actions in the case of disputes. Payday loans are typically small. Customers sign the contract and write a personal check for the amount borrowed plus a fee.

If they repay the loan within two weeks, the check amount would be all that would be owed. If they don't repay the loan with two weeks, customers are charged an additional fee to roll over the loan. The typical fee, not counting the rollover fee, is about $25 for every $100 borrowed.

Leopold said that sometimes the real interest rate on payday loans can reach 600 percent once rollover fees are added. These fees, he said, violate state usury laws, which prohibit excessive interest rates.

The class attorneys argued that the waiver provisions in the payday loan contracts were procedurally unconscionable because they are embedded in contracts that consumers enter into when they face financial stress. Of the seven companies offering payday loans in Florida in 2000, four required borrowers to sign a class action waiver.

The class attorneys also argued that the waiver was unconscionable because without class status, the consumers wouldn't be able to hire competent counsel. No skilled, experienced attorney would take an individual case because the fee would be too small to justify the work, Leopold said.

Maass agreed. "It would be virtually impossible for Ms. Reuter, or anyone in a similar position, to obtain competent individual representation for the types of claims brought here," she wrote.

Class action arbitration works like regular arbitration, but the attorneys represent a class rather than an individual client. Leopold said the arbitrator will either be someone both sides agreed on or someone assigned to the case.

Originally, the suit also questioned the validity of the mandatory arbitration provision borrowers had to sign. But in February, the U.S. Supreme Court ruled in a Florida case that that question must be decided by an arbitrator, not a judge. The high court decision overturned a Florida Supreme Court ruling.

In 2000, Reuter cut back on her working hours as a dispatch operator for Palm Beach County Fire Rescue while on maternity leave. Her weekly pay dropped from $780 every two weeks to $490 every two weeks.

To help with cash flow, she began taking out payday loans from Check 'n Go. Between June 15, 2000, and Sept. 2, 2000, Reuter took out seven loans. The loans ranged from $200 to $250 each and included finance charges between $27 and $32.50.

Each transaction required her to sign an agreement limiting her remedy for disputes to binding arbitration and preventing her from participating in a class action suit. Reuter admitted that she did not read the agreement when she signed it and that even if she had, she would not have understood the complex legal language.

She had taken out payday loans from multiple lenders. By September 2000, she tried to get a loan from her credit union to pay off all the loans, but was turned down.

Reuter obtained counsel and stopped paying the payday lenders. Her original attorney, Clayton Yates of Yates & Mancini in Fort Pierce, argued that the companies were in violation of Florida usury law.

Yates eventually joined with Leopold, Chris Casper of James Hoyer Newcomer & Smiljanich in Tampa, Richard Fisher of the Richard Fisher Law Office in Cleveland, Tenn., and Paul Bland to form Trial Lawyers for Public Justice. Bland is staff attorney for the group and argued the payday loan arbitration case before the U.S. Supreme Court.

Leopold said Trial Lawyers for Public Justice have four or five other cases pending against payday lenders. Maass' decision will not affect those other cases.