An embattled Vermont payday lender is seeking to enforce arbitration agreements contained in its customer contracts. The payday lender, which happens to also be a tribal entity, is asking the Second Circuit Court of Appeals to reverse a district court decision not to send certain customer claims against the payday lender to arbitration. The district court’s decision was made despite the fact that the payday lender’s customer agreements contain arbitration agreements that, according to the payday lender, are conspicuously disclosed to the consumer.
The basis of the customers’ claims is that the payday lender operates under a corrupt “rent-a-tribe” structure to take advantage of sovereign immunity and charge usurious interest rates on loans and that the payday lender impermissibly requires borrowers to link their bank accounts as a condition for a loan. According to the payday lender, the customers’ charge of corruption, even if true, should not invalidate the agreements to arbitrate or indicate that the agreements were induced by some fraudulent means. Moreover, the payday lender noted that if any portion of its customer agreement were deemed to be unconscionable, that portion could be severed from the remainder of the agreement, which would still be subject to the arbitration agreement.
The use of arbitration clauses in customer agreements for consumer financial products and services have recently come under increased scrutiny, with the CFPB disapproving of the practice and proposing a rule to prohibit companies from relying on mandatory arbitration clauses to dismiss a class action. Given this increased scrutiny, financial services providers likely will want to monitor the court’s treatment of the payday lender’s arbitration agreement in this case.
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