Banking and Finance Law Daily New statute may impact lower court decision that lender cannot compel arbitration
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Thursday, June 11, 2020

New statute may impact lower court decision that lender cannot compel arbitration

By Nicole D. Prysby, J.D.

A new California law prohibiting certain high-interest loans may impact, on remand, the trial court’s conclusions in a case where consumers sought public injunctive relief against the lender.

The federal Ninth Circuit Court of Appeals remanded a case in which the lower court refused to enforce an arbitration provision between consumers and a lender, because a newly enacted state law might change the lower court’s analysis. The consumers sued lender Speedy Cash, alleging that the annual percentage rates charged by the company violate California law. Speedy Cash sought arbitration, pursuant to the arbitration clause in the contract which also included a waiver of a borrower’s right to seek public injunctive relief. The federal district court refused to compel arbitration because it found that the consumers requested public injunctive relief that the California Supreme Court deemed non-waivable in McGill v. Citibank. But the Ninth Circuit remanded the case, because, during the appeal, a California statute was enacted that prohibits finance lenders from issuing loans between $2,500 and $10,000 with charges over 36 percent calculated as an annual simple interest rate (plus the prior month’s Federal Funds Rate). Neither plaintiff in the case executed a loan greater than $10,000, and the complaint did not specifically allege that Speedy Cash issued or continues to issue loans greater than $10,000. Therefore, whether the consumers’ requested injunction would prevent a threat of future harm is questionable, which in turn affects whether the McGill rule applies (Delisle v. Speedy Cash, June 9, 2020, per curiam, unpublished).

Two consumers brought a putative class action against Speedy Cash, a licensed California finance lender, after entering into installment loan agreements with Speedy Cash that had an annual percentage rate (APR) of over 95 percent for one loan and over 135 percent for the other. The loan agreements were drafted by Speedy Cash and contained clauses disallowing class actions, requiring arbitration of any claims arising from a dispute related to the agreement, and disallowing plaintiffs from acting as a private attorney general in court or in arbitration. The consumers claimed that the APR charged by Speedy Cash is excessive and prohibited by California’s Unfair Competition Law (UCL) and California’s Consumers Legal Remedies Act law (CLRA).

Lower court’s ruling. Speedy Cash motioned to compel arbitration, and the district court refused to enforce the arbitration provision. The lower court concluded that the consumers’ requested public injunctive relief that the California Supreme Court deemed non-waivable in McGill v. Citibank, N.A., 393 P.3d 85 (Cal. 2017). It based that conclusion on the fact that the consumers requested an injunction barring Speedy Cash from issuing loans greater than $2,500 with an APR over 90 percent and requiring Speedy Cash to issue corrective advertising about prior loans; the requested injunction would benefit the general public because it would prevent Speedy Cash from continuing to engage in unlawful conduct that threatens future harm (see Banking and Finance Law Daily, June 11, 2019). Speedy Cash appealed.

Appellate review. The Ninth Circuit remanded the case, due to an intervening development. During the appeal, a California statutory amendment took effect that prohibits finance lenders from issuing loans between $2,500 and $10,000 with charges over 36 percent calculated as an annual simple interest rate (plus the prior month’s Federal Funds Rate). Cal. Fin. Code § 22304.5(a) (effective January 1, 2020). Neither plaintiff in the case executed a loan greater than $10,000 and the complaint did not specifically allege that Speedy Cash issued or continues to issue loans greater than $10,000. Therefore, whether the consumers’ requested injunction would prevent a threat of future harm is questionable and the case was remanded for the district court to reconsider that determination in light of the new statute.

The Ninth Circuit also concluded that the Federal Arbitration Act did not preempt McGill and rejected Speedy Cash’s argument that McGill did not void the arbitration provision’s public waiver, because a public injunction under the California UCL and CLRA may only be applied to prevent deceptive advertising and marketing. Public injunctive relief under those statutes may restrain any unlawful act, and, if charging an APR above 90 percent on loans greater than $2,500 is unlawful, then enjoining Speedy Cash from issuing such loans would benefit the general public by preventing the threat of future injury. Further, the district court correctly applied California law to determine the enforceability of the arbitration provision even though the loan agreement designates Kansas law as controlling. Kansas law is contrary to California policy and California holds a materially greater interest in the litigation.

This case is No. 19-55794.

Attorneys: Jason Ibey (Kazerouni Law Group, APC) for Cindy Delisle and Robert Dougherty. Paul L. Gale (Troutman Sanders LLP) for Speedy Cash.

Companies: Speedy Cash

MainStory: TopStory CaliforniaNews InterestUsury Loans UDAAP

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