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  • 4th Circuit affirms certification of class action in tribal lending case

    Courts

    On January 24, the U.S. Court of Appeals for the Fourth Circuit concluded that a district court did not abuse its discretion when certifying a class action. The lawsuit alleges an individual who orchestrated an online payday lending scheme violated the Racketeer Influenced and Corrupt Organization Act (RICO), engaged in unjust enrichment, and violated Virginia’s usury law by partnering with federally-recognized tribes to issue loans with allegedly usurious interest rates. (Covered by InfoBytes here.) The plaintiffs alleged the defendant partnered with the tribes to circumvent state usury laws even though the tribes did not control the lending operation. The district court stated that, as there was “no substantive involvement” by the tribes in the lending operation and that the evidence showed that the defendant was “functionally in charge,” the lending operation—which allegedly charged interest rates exceeding Virginia’s 12 percent interest cap—could not claim tribal immunity. 

    After the district court certified two borrower classes, the defendant appealed, arguing, among other things, that “[b]orrowers entered into enforceable loan agreements with lending entities in which they waived their right to bring class claims against him,” and that “common issues do not predominate so as to permit class treatment in this case.” Specifically, the defendant claimed that his role in the lending operations changed throughout the class period, and that individualized “proof” and “tracing” would be necessary to prove that he “participated in the direction of the affairs of the alleged enterprise” or that he received some portion of each borrower’s interest payments.

    On appeal, the 4th Circuit disagreed with the defendant’s assertions. It found no reason to question the district court’s conclusion that the defendant was the “de facto” head of the lending operations throughout the class period. “And the fact that [the defendant] served as the ‘de facto head’ of the lending operations for the entire class period supports the district court’s determination that the Borrowers will be able to use common proof to show that [the defendant] ‘participated in the direction of the’ lending operations such that common questions predominate over individual questions[,]” the appellate court stated. The 4th Circuit further concluded that the “record supports the district court’s conclusion that [the defendant] lied when he said he was never involved in receiving or demanding payments on [the lending operation’s] loans.”

    Courts Appellate RICO Tribal Lending Consumer Finance Payday Lending Usury Interest Rate Class Action State Issues Virginia

  • District Court approves $84 million payment processing settlement

    Courts

    On August 17, the U.S. District Court for the District of Nebraska granted final approval of an $84 million class action settlement resolving allegations that a payment processing company’s billing practices overcharged merchants. Class members retained the company to process credit card payments and claimed that the company allegedly charged fees that did not align with the terms of their contracts. Class members accused the company of Racketeer Influenced and Corrupt Organizations Act violations, breach of contract, and fraudulent concealment related to allegations that the company assessed noncompliance fees, increased contractual credit card discount rates, and shifted credit card transactions from lower-cost rate tiers to higher-cost rate tiers. Under the terms of the settlement, the company will pay up to $84 million into a settlement fund, which will provide cash benefits to class members and cover administrative costs, attorney fees, and other expenses.

    Courts Class Action Payment Processors Consumer Finance RICO Settlement

  • 9th Circuit to rehear en banc whether tribal lenders can arbitrate RICO claims

    Courts

    On June 6, a majority of nonrecused active judges on the U.S. Court of Appeals for the Ninth Circuit vacated a previously issued opinion that said tribal lenders could arbitrate Racketeer Influenced and Corrupt Organizations Act (RICO) class action claims, saying it will rehear the case en banc. As previously covered by InfoBytes, last September the 9th Circuit panel majority concluded that “an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement is enforceable must be upheld unless that specific delegation provision is itself unenforceable.” The panel reviewed whether California residents who received loans from an online lender were allowed to pursue class RICO claims based on allegations that they were charged interest rates exceeding state limits from lenders claiming tribal immunity. The district court granted class certification and ruled that the entire arbitration agreement, including provisions containing a class action waiver, was unenforceable. On appeal, the panel majority cited to the U.S. Supreme Court’s decision in Rent-A-Center, West, Inc. v. Jackson, which determined, among other things, that when a party challenges an entire agreement—not just an arbitration provision—deciding “gateway” issues such as enforceability must be delegated to an arbitrator. “[W]hen there is a clear delegation provision, that question is . . . for the arbitrator to decide so long as the delegation provision itself does not eliminate parties’ rights to purse their federal remedies,” the majority wrote. The dissenting judge held, however, that the panel majority “misunderstood the effect of the choice-of-law provisions in the agreements,” arguing that the provisions curtail an arbitrator’s authority by allowing application of “only tribal law and a small and irrelevant subset of federal law,” thus preventing an arbitrator “from applying the law necessary to determine whether the delegation provisions and the arbitration agreements are valid.” He further contended that the panel majority’s decision diverged from decisions reached by several sister circuits, which “have consistently condemned the arbitration agreements embedded in tribal internet payday loan agreements, including those used by the very same lenders as in this case.”

    Courts Appellate Ninth Circuit Class Action Arbitration Interest Rate Usury RICO Consumer Finance

  • DOJ to strengthen kleptocracy asset recovery

    Financial Crimes

    On April 28, the DOJ issued a fact sheet outlining legislative proposals to strengthen kleptocracy asset recovery as part of the Biden administration’s efforts “to isolate and target the crimes of Russian officials, government-aligned elites, and those who aid or conceal their unlawful conduct.” The proposed measures would “streamline asset forfeiture proceedings in certain circumstances” and also:

    • Enable the DOJ and Treasury and State Departments to work together to return forfeited kleptocrat funds to remediate harms caused to Ukraine;
    • Expand forfeiture authorities under the International Emergency Economic Powers Act (IEEPA) to include property used to facilitate the violations of sanctions and “amend IEEPA’s penalty provision to extend the existing forfeiture authorities to facilitating property, not just to proceeds of the offenses”;
    • Expand the definition of “racketeering activity” in the Racketeer Influenced and Corrupt Organizations Act to include criminal violations of IEEP and the Export Control Reform Act to improve the U.S.’s ability to investigate and prosecute sanctions evasion and export control violations;
    • Extend the statute of limitations for prosecuting sanctions violations and the statute of limitations for seeking forfeitures based on foreign offenses from five years to 10 years; and
    • Improve the U.S.’s ability to work with international partners to facilitate enforcement of foreign restraint and forfeiture orders for criminal property and improve the ability to take these actions in the U.S.

    As previously covered by InfoBytes, the DOJ launched “Task Force KleptoCapture,” an “interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed, along with allies and partners,” in order to “isolate Russia from global markets” in March. The task force has since engaged in numerous transatlantic efforts to sanction numerous Russian elites, Russia’s largest privately-owned aircraft, and one of the world’s largest superyachts (covered by InfoBytes here), and has “seized approximately $625,000 associated with sanctioned parties held at nine U.S. financial institutions.”

    Find continuing InfoBytes coverage on the U.S. sanctions response to Russia’s invasion of Ukraine here.

    Financial Crimes DOJ Digital Assets Russia Ukraine Ukraine Invasion Of Interest to Non-US Persons Biden RICO OFAC Sanctions Department of Treasury Department of State

  • 4th Circuit: Tribal lenders must face usury claims

    Courts

    On November 16, the U.S. Court of Appeals for the Fourth Circuit upheld a district court’s ruling denying defendants’ bid to dismiss or compel arbitration of a class action concerning alleged usury law violations. The plaintiffs—Virginia consumers who defaulted on short-term loans received from online lenders affiliated with a federally-recognized tribe—filed a putative class action against tribal officials as well as two non-members affiliated with the tribal lenders, alleging the lenders violated the Racketeer Influenced and Corrupt Organizations Act (RICO) and Virginia usury laws by charging interest rates between 544 and 920 percent. The defendants moved to compel arbitration under a clause in the loan agreements and moved to dismiss on various grounds, including that they were exempt from Virginia usury laws. The district court denied the motions to compel arbitration and to dismiss, ruling that the arbitration provision was unenforceable as a prospective waiver of the borrowers’ federal rights and that the defendants could not claim tribal sovereign immunity. The district court also “held the loan agreements’ choice of tribal law unenforceable as a violation of Virginia’s strong public policy against unregulated lending of usurious loans.” However, the district court dismissed the RICO claim against the tribal officials, ruling that RICO only authorizes private plaintiffs to sue for money damages and not injunctive or declaratory relief.

    On appeal, the 4th Circuit concluded that the arbitration clauses in the loan agreements impermissibly force borrowers to waive their federal substantive rights under federal consumer protection laws, and contained an unenforceable tribal choice-of-law provision because Virginia law caps general interest rates at 12 percent. As such, the appellate court stated that the entire arbitration provision is unenforceable. “The [t]ribal [l]enders drafted an invalid contract that strips borrowers of their substantive federal statutory rights,” the appellate court wrote. “[W]e cannot save that contract by revising it on appeal.” The 4th Circuit also declined to extend tribal sovereign immunity to the tribal officials, determining that while “the tribe itself retains sovereign immunity, it cannot shroud its officials with immunity in federal court when those officials violate applicable state law.” The appellate court further noted that the “Supreme Court has explicitly blessed suits against tribal officials to enjoin violations of federal and state law.” The 4th Circuit ultimately affirmed the district court’s judgment, noting that the loan agreement provisions were unenforceable because “tribal law’s authorization of triple-digit interest rates on low-dollar, short-term loans violates Virginia’s compelling public policy against unregulated usurious lending.”

    The appellate court also agreed with the district court that RICO does not permit private plaintiffs to seek an injunction. “Congress’s use of significantly different language” to define the scope of governmental and private claims under RICO “compels us to conclude” that “private plaintiffs may sue only for treble damages and costs,” the appellate court stated. While plaintiffs “urge us to consider by analogy the antitrust statutes,” provisions outlined in the Clayton Act (which explicitly authorize injunction-seeking private suits) have “no analogue in the RICO statute,” the appellate court wrote, adding that “nowhere in the RICO statute has Congress explicitly authorized private actions for injunctive relief.”

    Courts Fourth Circuit Appellate Tribal Lending Tribal Immunity RICO State Issues Interest Usury Online Lending Class Action Consumer Finance

  • District Court allows usury claims to proceed, says class action waivers do not bar certification

    Courts

    On October 14, the U.S. District Court for the Eastern District of Virginia granted class certification in an action alleging a payday lending operation violated RICO and Virginia’s usury law by partnering with federally-recognized tribes to issue loans with allegedly usurious interest rates. The plaintiffs alleged that the defendants (“founders, funders, [or] closely held owners of [a lender] that serviced the high-interest loans made by certain tribal lending entities”) participated in a lending scheme to circumvent state usury laws. The plaintiffs seek declaratory and injunctive relief, damages, and attorney’s fees and costs arising from claims alleging that the defendants, among other things: (i) used income derived from the collection of unlawful debt to further assist the operations of the enterprise; (ii) participated in an enterprise involving the unlawful collection of debt; (iii) collected unlawful debt; (iv) entered into unlawful agreements; (v) issued unlawful loans with interest rates exceeding 12 percent; and (vi) were thus unjustly enriched. The court granted class certification after finding that the existence of a class action waiver in loan agreements between plaintiffs and tribal lenders did not bar class certification. The court explained that “[b]ecause the class action waivers exist to ‘make unavailable to the borrowers the effective vindication of federal statutory protections and remedies,’ the prospective waiver doctrine applies.” The waivers were thus unenforceable.

    Courts Class Action Payday Lending Tribal Immunity Tribal Lending State Issues Usury Interest Rate RICO

  • 9th Circuit says tribal lenders can arbitrate RICO class claims

    Courts

    On September 16, a split U.S. Court of Appeals for the Ninth Circuit concluded that “an agreement delegating to an arbitrator the gateway question of whether the underlying arbitration agreement is enforceable must be upheld unless that specific delegation provision is itself unenforceable.” The appellate court’s decision reversed a district court’s ruling that an arbitration agreement entered between tribal lenders and borrowers was unenforceable because it impermissibly waived borrowers’ rights to pursue federal statutory claims. As previously covered by InfoBytes, in April the U.S. District Court for the Northern District of California granted class certification to residents who received loans from an online lender, allowing them to pursue class Racketeer Influenced and Corrupt Organizations Act (RICO) claims based on allegations they were charged interest rates that exceeded state limits for lenders claiming tribal immunity. The class of borrowers include California residents who collected loans from an Oklahoma-based tribe, and California residents who received loans from a Montana-based tribe. The district court also ruled that the entire arbitration agreement, including provisions containing a class action waiver, was unenforceable. The lenders appealed.

    On appeal, the 9th Circuit majority cited to the U.S. Supreme Court’s decision in Rent-A-Center, West, Inc. v. Jackson, which determined, among other things, that when a party challenges an entire agreement—not just an arbitration provision—deciding “gateway” issues such as enforceability must be delegated to an arbitrator. “We do not dispute that [b]orrowers have a reasonable argument that the arbitration agreement as written precludes them from asserting their RICO claims or other federal claims in arbitration. . . . And if that is true, the arbitration agreement is likely unenforceable as a prospective waiver,” the majority wrote. “But, when there is a clear delegation provision, that question is. . .for the arbitrator to decide so long as the delegation provision itself does not eliminate parties’ rights to purse their federal remedies,” the majority added.

    The 9th Circuit’s opinion differs from decisions issued by other appellate courts, which found that certain delegation provisions were unenforceable for various reasons after reviewing whether an arbitration agreement as a whole was unenforceable due to prospective waiver of federal claims. (See InfoBytes coverage of the 3rd and 4th Circuit decisions here and here.) The majority stated that the other appellate courts “considered the wrong thing by ‘confus[ing] the question of who decides arbitrability with the separate question of who prevails on arbitrability.’” According to the majority, “[t]he proper question is not whether the entire arbitration agreement constitutes a prospective waiver, but whether the antecedent agreement delegating resolution of that question to the arbitrator constitutes prospective waiver.”

    Courts Arbitration Tribal Lending RICO Interest Rate Usury Ninth Circuit Appellate

  • District Court approves RESPA class action settlement

    Courts

    On August 19, the U.S. District Court for the District of Maryland granted preliminary approval of a proposed class action settlement claiming a mortgage company engaged in an allegedly illegal kickback scheme with a title company. According to the memorandum in support of the plaintiffs’ motion for preliminary approval, the title company paid, and the mortgage company received and accepted, kickbacks in exchange for the mortgage company’s “assignment and referral of residential mortgage loans, refinances, and reverse mortgages to [the title company] for title and settlement services.” This conduct, the plaintiffs contended, violated RESPA and RICO. While the mortgage company denied all substantive allegations and liability, the parties reached a proposed settlement, in which class members (defined as borrowers with federal mortgage loans originated by the mortgage company for which the title company provided settlement services) will each receive approximately $3,200 from a $990,000 settlement fund. The preliminarily approved settlement also provides for class counsel fees and expenses and class representative service awards for a total not to exceed roughly $1.27 million.

    Courts RESPA Class Action Settlement Kickback RICO Mortgages

  • District Court certifies “rent-a-tribe” class action

    Courts

    On July 20, the U.S. District Court for the Eastern District of Virginia certified a “rent-a-tribe” class action alleging an individual who orchestrated an online payday lending scheme violated the Racketeer Influenced and Corrupt Organization Act (RICO), engaged in unjust enrichment, and violated Virginia’s usury law by partnering with federally-recognized tribes to issue loans with allegedly usurious interest rates. The plaintiffs alleged the defendant partnered with the tribes to circumvent state usury laws even though the tribes did not control the lending operation. The court ruled that, as there was “no substantive involvement” by the tribes in the lending operation and evidence showed that the defendant was “functionally in charge,” the lending operation—which allegedly charged interest rates exceeding Virginia’s 12 percent interest cap—could not claim tribal immunity. The plaintiffs moved to certify two RICO classes, distinguished from each other based on the lending entity, each with two sub-classes of borrowers: (i) a usury sub-class of borrowers who either paid any principal, interest, or fees on their loans; and (ii) a unjust enrichment subclass of borrowers who paid any amount on their loans. The defendant challenged class certification, arguing that “due to his changing roles” in the lending operation over the class period “differences between class members will result in a need for a series of complicated mini-trials.” In certifying the two RICO classes, the court called the defendant’s recommendation to bring individual lender suits “an unnecessary and untenable burden on the judicial system.” Furthermore, the court wrote that “[w]ith respect to [p]laintiffs’ unjust enrichment claims, [the defendant] also attempts to argue that some [p]laintiffs did not confer a benefit on [the defendant] because they paid back less than they received on their loans.” However, the court noted that because Virginia law states that any contract in violation of the state’s usury law is void, “any money paid on a void contract could constitute a benefit for the purposes of an unjust enrichment.”

    Courts Class Action RICO Consumer Finance Tribal Lending Usury Interest Rate Payday Lending State Issues

  • District Court approves final settlement in tribal lending class action

    Courts

    On July 9, the U.S. District Court for the Eastern District of Virginia granted final approval of a revised class action settlement, certifying the settlement class, approving the settlement terms, and entering final judgment regarding allegations that an operation used tribal sovereign immunity to evade state usury laws when charging unlawful interest on loans. As previously covered by InfoBytes, in March, the plaintiffs filed a class action complaint against the operation alleging, among other things, violations of the Racketeer Influenced and Corrupt Organizations Act, EFTA, and TILA. The settlement cancels roughly 71,000 loans, requires the operation to pay $86 million in damages, and caps fees at $15 million. According to the final approval, the court finds the revised settlement to be “fair, reasonable, and adequate.”

    Courts Class Action Settlement Tribal Lending Online Lending Consumer Finance TILA EFTA Usury RICO

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