A Missouri payday lender’s use of boilerplate language to compel arbitration and to force consumers to waive their right to pursue class actions may be on shaky ground. If the trend continues, consumers may have more options to defend themselves if they think high rate lenders broke the rules.
The lender in this case, like many payday lenders, included in its loan paperwork terms which required both parties to give up their right to sue or be sued in courts — in favor of arbitration proceedings — and to give up their right to have any dispute handled as a class action. Of course a lender would be hard-pressed to find a way to use a class action against many of its customers and arbitration is typically a sham designed to protect business from lawsuits or bad publicity. But until federal law changes,arbitration is highly favored.
In this case, the boilerplate language in their contract was (and probably still is) a “take-it-or-leave-it” affair, as it usually is in all contracts between a sophisticated financial entity and a consumer. The arbitration and class action waiver language in the contract ran to more than 1,300-words — all shrunk to fit onto one page! (When a court had it reprinted in “normal” 12-point type, it ran to six-pages.)
When a woman sued in St. Louis County, Missouri, alleging they had violated Missouri’s laws, she argued the contract taking away these rights was unconscionable. She pointed out that class actions are specifically intended to allow plaintiffs with only a small stake in the action to join together to vindicate their rights, and help both sides minimize the costs of settling their disputes.
A waiver of class action rights in a situation where the damages may only be a few hundred dollars will leave most consumers without a lawyer, since most lawyers simply cannot take on large scale lawsuits like that where the time and expense will never be repaid. She also pointed out that although the lender had explicitly waived its right to sue in a court, it had done so multiple times in order to collect its debts.
The St. Louis County Circuit Court concluded that the payday loan boilerplate waiver of class actions was unconscionable and directed the case to proceed through a class arbitration proceeding through the highly respected arbitration organization, the American Arbitration Association. While the arbitration panel could still conclude the loans complied with Missouri’s lending and merchandising practices laws, it is a victory for vulnerable consumers that the courts are beginning to shy away from the old saw that, if you sign it, you’re stuck with it, no matter what.
Case: Woods v. QC Financial Services, Inc., 06-CC-004072-V-CV (Order & Judgment, 12/31/07)
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