The Second Circuit today decided a case involving payday lending and forced arbitration, ruling for the plaintiffs on two important issues.
In Gingras v. Think Finance, Vermont residents who claim that the payday loans violate Vermont usury and consumer protection laws as well as federal laws including the RICO statute sued the operators of an alleged predatory payday lending scheme, in which private investors whose payday lending business had been shut down by the FTC enlisted a native American tribe to set up an entity through which they would make loans over the internet nationwide. The plaintiffs sought monetary and injunctive relief. The defendants include tribal members who are officers of the tribal entity that nominally made the loans.
The tribal defendants claimed tribal sovereign immunity against the plaintiffs’ claims, which are limited to claims for injunctive relief. All the defendants also asserted that the claims are subject to arbitration under arbitration clauses included in the loan agreements. The U.S. District Court for the District of Vermont rejected those and other arguments made by the defendants in support of the dismissal of the actions, and the defendants appealed the rulings denying immunity and denying their motion to compel arbitration.
On appeal, the defendants raised two issues that (1) tribal immunity bars claims for injunctive relief against tribal officers alleged to have violated state laws outside of tribal lands; and (2) the district court erred in not requiring the plaintiffs to arbitrate their claims. The court of appeals rejected both arguments and affirmed the district court on both points. The court held that tribal sovereign immunity does not bar the lawsuit, and that the plaintiffs may sue tribal officers under a theory analogous to Ex parte Young for prospective, injunctive relief based on violations of state and substantive federal law occurring off of tribal lands. The court also held that the arbitration clauses of the loan agreements are unenforceable and unconscionable.
The Second Circuit's decision is here.