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Mandatory Arbitration Clauses Took a Hit on an FDCPA Case — Good for Consumers!

While not a Florida case, the Fourth Circuit ruled today that the arbitration provision of Western Sky Payday Loans is unenforceable.  This may be a sign of expanding consumer protections in the future, although it is very early to tell.  Mandatory arbitration clauses force a consumer to give up their right to go to court, participate in a class action, pay expensive filing fees of sometimes thousands of dollars, pay an arbitrator $300-$400 a hour (a Judge is free!) as well as other drawbacks.

Quick summary of the highlights:

  • No one appears to seriously dispute that Western Sky’s payday loans violated a host of state and federal lending laws. Indeed, a quick glance at Western Sky’s loan agreement suggests that Western Sky was keenly aware of the dubious nature of its trade.
  • This arbitration agreement fails for the fundamental reason that it purports to renounce wholesale the application of any federal law to the plaintiffs’ federal claims.
  • Yet while the Court has affirmed that the FAA gives parties the freedom to structure arbitration in the way they choose, it has repeatedly cautioned that this freedom does not extend to a “substantive waiver of federally protected civil rights” in an arbitration agreement.
  • It goes well beyond the more borderline cases involving mere disincentives to pursue arbitral relief. As the plaintiffs point out, the arbitration agreement here almost surreptitiously waives a potential claimant’s federal rights through the guise of a choice of law clause.
  • But a party may not underhandedly convert a choice of law clause into a choice of no law clause — it may not flatly and categorically renounce the authority of the federal statutes to which it is and must remain subject.

4th Circuit: Haves v. Delbert Services

Hayes filed suit in April 2014 alleging that Delbert violated the Fair Debt Collection Practices Act’s disclosure requirements by using forms that did not name the creditor to whom debts were owed or include a required notice stating the letter was from a debt collector.  Delbert is one of a group of companies connected with tribal payday lender Western Sky Financial LLC, an online lender that asserted state laws did not apply to its business because it was based on an Indian reservation and owned by a member of the Cheyenne River Sioux Tribe.  This argument fell flat apparently.

Unfortunately, the consumer has been thrown under the bus mostly due to these arbitration clauses.  In American Express Co. v. Italian Colors Restaurant, for example, the Supreme Court held that even if the terms of the arbitration agreement prevent anyone, as a practical matter, from ever winning certain federal statutory claims, the arbitration agreement was still enforceable.  So the Fourth Circuit’s decision today provides that a drafter of an arbitration clause can’t simply purport to eliminate federal rights altogether.

We are running into arbitration clauses sometimes in our student loan cases.  So any movement to throw them out benefits our Tampa Bay area clients!  For assistance in fighting student loans and debt collectors, please contact us at Christie Arkovich, P.A.

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