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From Banking and Finance Law Daily, September 27, 2013

FTC files amicus brief in payday lending class action

By Thomas G. Wolfe, J.D.

The Federal Trade Commission has filed an amicus brief in support of a class action lawsuit brought by consumers who are challenging payday lenders’ practices of requiring borrowers to submit to arbitration at a Native American reservation in South Dakota. Although the FTC itself has separately sued the same payday lenders for alleged unfair and deceptive debt collection practices, the FTC recently filed the amicus brief in the consumers’ suit (Jackson v. Payday Financial, LLC) in the U.S. Court of Appeals for the Seventh Circuit not only because the consumers’ class action presents an arbitration issue not present in the FTC’s action, but also because the FTC has a similar interest in contending that the payday lenders cannot lawfully compel the consumers to submit to tribal arbitration.

FTC’s press release. As emphasized in its press release, the FTC’s brief argues, “For the vast majority of consumers, who can little afford the expense, travel to the Reservation to participate in either arbitral or court proceedings is simply infeasible.” According to the FTC, as a general rule, Native American tribes and tribal courts have legal authority over their own members and not over non-members, unless non-members conduct activities inside the reservation or enter into a commercial relationship with the tribe or a member of the tribe.

FTC’s brief. The FTC summarizes its own separate litigation against the same payday lenders and draws parallels with the consumers’ case. In its brief, the FTC notes that consumers who take out payday loans from the payday lenders do so via the Internet. The consumers do not conduct business on the reservation and should not be required to travel to the reservation to arbitrate their claims, the brief argues. Moreover, the FTC maintains that the lenders’ practice of requiring the consumers to submit to tribal arbitration of their disputes is itself “an unfair and unconscionable” practice under the FTC Act.

According to the FTC, the consumers’ case presents unique circumstances that warrant “invalidating as unconscionable” provisions of the payday lenders’ loan contract provisions that require tribal arbitration of the consumers’ claims.

The FTC’s brief was filed in Case No. 12-2617.

Attorneys: Jonathan E. Nuechterlein, John F. Daly, Michele Arington, and Burke W. Kappler for the Federal Trade Commission.

Companies: Payday Financial, LLC

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