InfoBytes Blog
District Court says MLA’s statute of limitations begins upon discovery of facts
The U.S. District Court for the Eastern District of Virginia recently granted an installment lender’s motion to dismiss, ruling that most of the class members’ claims are time-barred by the Military Lending Act’s (MLA) two-year statute of limitations. Plaintiffs are active duty servicemembers who entered into installment loans with the defendant. Claiming four violations of the MLA, plaintiffs alleged the defendant (i) extended loans with interest rates exceeding the MLA’s 36 percent interest rate cap; (ii) extended loans that involved roll overs of prior loans; (iii) required plaintiffs to agree to repayment by allotment (with a backup preauthorized electronic fund transfer) as a condition to receiving a loan; and (iv) required plaintiffs to provide a security interest in their bank accounts as a condition for receiving a loan. Plaintiff sought to certify a class covering the five years preceding the date the complaint was filed. Defendant moved to dismiss, arguing that plaintiffs have only been harmed by technical violations of the MLA and did not suffer a concrete injury. Plaintiffs countered that the defendant’s MLA violations caused them to sustain injuries from making payments, including interest payments, “on loans that were ‘void from [their] inception’ [] due to their unlawful refinancing, allotment, and security interest requirements.”
The court reviewed a significant issue raised by the parties’ differing interpretations of the MLA’s statute of limitations and its applicability to plaintiffs’ loans. Specifically, the parties disagreed as to whether “discovery by the plaintiff of the violation,” which triggers the two-year limitations period, requires that a plaintiff only discover the facts constituting the basis for the violation, as argued by the defendant, or instead requires that a plaintiff also know that the MLA was violated, as the plaintiffs argued. While acknowledging that the text in question is inconclusive, the court stated that since the MLA “does not require ‘discovery’ of both the ‘violation’ and ‘liability’ but only the ‘violation that is the basis for such liability,’ the text appears to support the interpretation that only discovery of the violative conduct is required, and
not discovery of the actionability of that conduct.” The court also reviewed other federal statutory discovery rules where other courts “have consistently found that ‘discovery’ requires that a plaintiff have knowledge only of the facts constituting the violation and not the legal implications of those facts.” Relying on this, as well as other court interpretations, the court determined that “the two-year limitations period is triggered when a plaintiff discovers the facts
constituting the basis for the MLA violation and not when the plaintiff recognizes that these facts
support a legal claim.” Thus, the court found that most of the loans underlying the claims are time-barred.
However, for loans that fell within the applicable limitations period, the court granted defendant’s motion to dismiss for failure to state a claim, concluding, among other things, that a creditor is not prohibited from taking a security interest in a plaintiff’s bank account by way of a preauthorized electronic fund transfer provided the military annual percentage rate does not exceed the allowable 36 percent (a claim, the court noted, plaintiffs dismissed and did not otherwise address). Moreover, the court determined that plaintiffs failed to allege that the defendant was a “creditor” under the narrower definition used by the MLA in its refinancing and roll-over prohibition or that the defendant’s “characterization of the convenience of repayment by allotment amounted to a misrepresentation or concealment of facts giving rise to plaintiffs’ MLA claim.”