Payday Lender Can’t Impose Arbitration of 440% Interest

A federal appeals court in Virginia refused a payday lender’s request to order mandatory arbitration of its online payday loan that included a 440 percent interest rate for a North Carolina borrower.

The 4th U.S. Circuit Court of Appeals rejected Wednesday the argument by Great Plains Lending that it was not subject to the 16 percent maximum interest allowed in North Carolina. Great Plains contends it had no physical presence in the state and was based on Otoe-Missouria Tribe jurisdiction and was subject only to the tribe’s law and jurisdiction.

Borrower James Dillon filed a class action complaint alleging that Great Plains, which is owned by BMO Harris Bank, and other tribal payday lenders issued many illegal loans that violate state usury law. He argued the online loans where facilitated by the Automated Clearing House (ACH) Network, which processes electronic funds transfers.

Dillon claimed that made Great Plains subject to North Carolina legal requirements. Great Plains sought to compel arbitration of Dillon’s dispute and have the class action dismissed.  The trial court refused and the bank appealed.

The appeals court rejected the bank’s choice of the Indian jurisdiction saying the bank’s contract could not be used to surreptitiously waive a potential claimant’s federal rights through a choice of law clause in the contract.

“We interpret these terms in the arbitration agreement as an unambiguous attempt to apply tribal law to the exclusion of federal and state law,” the panel wrote.

“Additionally, when a party uses its superior bargaining power to extract a promise that offends public policy, courts generally opt not to redraft an agreement to enforce another promise in that contract,” the court said.  “Accordingly, we hold that the entire arbitration agreement is unenforceable,” Judge  Barbara Keenan wrote.

She was joined by Judges Stephanie Thacker and Allyson Duncan.


Case: Dillon v. BMO Harris Bank, No. 16-1362



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