PITTSBURGH – A federal judge determined that plaintiffs in a class action will be able to conduct limited discovery towards an arbitration motion filed by an Illinois online lender which allegedly charged usurious interest rates on loans it offered to its customers.
Patricha McDaid (individually and on behalf of all others similarly situated) first filed suit in the Allegheny County Court of Common Pleas on July 23 versus Avant, LLC of Chicago, Ill.
After accepting loan applications, evaluating a consumer’s creditworthiness and makes a loan offer, Avant requests WebBank to issue the loan. Two days after a loan is issued, WebBank sells the loan back to Avant without recourse. The loans are simple interest loans.
Most of the loans are high-interest, with interest rates reaching up to 36 percent simple interest per year. The loans also include an origination fee, which generally is a percentage of a loan’s principal balance and are often in the hundreds to thousands of dollar.
When consumers default on a loan, Avant sells their loans for pennies on the dollar to various debt buyers. When Avant sells its loans, it sells all rights, title, and interest in and to the loans to the debt purchaser. The debt buyers then attempt to collect the full balance of the loans from consumers.
“In August of 2017, Avant issued a personal loan to McDaid. The loan was used for personal, family and/or household purposes. The loan was issued in the amount of $4,200. Yet McDaid only received $4,042.50 of actual money because Avant charged and deducted a $157.50 ‘administration fee.’ Interest also was charged on the loan. The interest and administration fee yielded an annual percentage rate of over 29.94 percent,” the suit said.
“McDaid made $687.64 in payments on the loan: $285.10 of these payments went to principal and $402.54 of these payments went to interest and fees. At a certain point, McDaid could no longer repay the loan and the loan was charged-off. After the loan was charged-off, Avant allegedly sold all of its rights and interest in the loan to a debt buyer called Absolute Resolutions Investments, LLC. To the extent ARI actually bought the loan, it did so for pennies on the dollar of the unpaid balance. After buying the loan for pennies on the dollar, ARI sued McDaid in a
Washington County Magisterial District Court. McDaid hired an attorney to defend the lawsuit. The Magisterial District Court eventually ruled in favor of McDaid and against ARI.”
According to the litigation, Avant is a non-bank that is not licensed under the Consumer Discount Company Act and is not authorized under any law to charge interest above the Loan Interest Protection Law’s 6 percent interest rate cap, but does so regardless. The suit added that Avant’s actions make loans more expensive, increase the risk of default, and make the consequences of default much worse.
“For example, because of the unlawful interest and fees charged when the account was active, McDaid’s payments went to unlawful interest and fees, rather than paying down the amount McDaid actually received on the loan. So, when McDaid defaulted, she owed substantially more than she otherwise would have owed had Avant charged interest and fees at the lawful rates and amounts,” per the suit.
“Similarly, because of the unlawful interest and fees that continued to accumulate on the account when the account was in default, McDaid owed more than she otherwise would have owed had Avant charged interest and fees at the lawful rates and amounts. Avant’s actions caused and continue to cause substantial harm to Pennsylvania consumers by making their loans more costly, increasing their chances of default, and making the consequences of default far worse. McDaid brings this action seeking redress for the harm Avant’s actions caused.”
Counsel for Avant removed the case to the U.S. District Court for the Western District of Pennsylvania on Aug. 27, under the auspices of the Class Action Fairness Act of 2005.
The defendant argued that due to diversity of citizenship and the amount sought in damages, more than $5 million, the case belonged in federal court.
“Plaintiff is domiciled in the Commonwealth of Pennsylvania. Avant is not a Pennsylvania citizen. Avant is organized under the laws of the State of Delaware and is headquartered and has its principal place of business in Chicago, Illinois,” the removal motion stated.
“Avant has reviewed its records and confirmed that, based on the relief requested in the complaint, as well as the number and amount of the loans made to the putative class, the amount in controversy exceeds $5,000,000.”
The motion stated that the complaint seeks to recover, in part, “triple the amount of any excess interest and charges…along with attorneys’ fees”, and that the plaintiff is seeking to recover, in part, three times the amount of any interest payments made by putative class members above a six percent rate of interest.
“Plaintiff alleges that she and the purported class are entitled to ‘triple the amount of any excess interest and charges.’ Thus, the average member of the purported class would seek $6,308.40 (2,102.80 x 3) based on alleged excess interest charges. If each purported class member seeks approximately $6,308.40 in monetary damages, a total of approximately 793 class members are required in order to meet the $5,000,000 minimum amount in controversy (5,000,000 / 6308.40),” the motion stated.
“Avant has reviewed its records and states that far more than 793 individuals were issued loans within the Commonwealth of Pennsylvania between Aug. 23, 2015 and Aug. 8, 2021. With far more than 793 putative class members, and plausible damages of approximately $6,308.40 per class member, the $5,000,000 threshold is easily met.”
Avant filed a motion to compel arbitration and also to dismiss for failure to state a claim on Sept. 2.
Avant sought the Court to compel plaintiff McDaid to submit her claims on an individual basis against Avant to arbitration, pursuant to the written agreement to arbitrate between the parties, and to dismiss those same claims with prejudice.
“Plaintiff’s purported claims against Avant arise out of a loan agreement and promissory note. That loan contains a written arbitration agreement which requires plaintiff to arbitrate disputes against Avant that broadly relate to the loan or plaintiff’s relationship with Avant. As such, plaintiff is required to submit her claims to arbitration,” the motion to compel and dismiss stated.
“In further support of this motion, Avant relies on the following: The Declaration of Bhanu Arora in support of the motion to compel arbitration and to dismiss, and Avant’s memorandum in support of the motion to compel arbitration and to dismiss filed contemporaneously herewith.”
According to Avant, the plaintiff should be compelled to arbitrate all of her claims against it, and such claims should be dismissed.
“There is a valid arbitration agreement in writing, the credit transaction clearly involved interstate commerce and the arbitration provision is unquestionably broad enough in scope to encompass the claims that plaintiff has asserted against Avant,” the motion said.
UPDATE
When the putative class plaintiffs moved to conduct limited discovery as to the arbitration motion in play, U.S. Magistrate Judge Lisa Pupo Lenihan ruled on Oct. 26 that they were allowed to do this.
“Although plaintiff did not attach the loan agreement provided by Avant to her complaint, Avant argues that this is the agreement that controls. Plaintiff raises a number of issues surrounding the presentation of the agreement, its terms and her alleged assent. These issues may be addressed by the undertaking of limited discovery via interrogatories and requests for production,” Lenihan said.
“In addition, defendant was not a signatory to the agreement containing the arbitration provision. While it may be entitled to enforce the provision, this is not entirely clear. Traditional principles of state law allow a contract to be enforced by a nonparty through various means. Limited discovery on this issue is also warranted.”
For counts of violating the Loan Interest Protection Law, the Consumer Discount Company Act and the Unfair Trade Practices and Consumer Protection Law, the plaintiffs are seeking an order declaring defendant’s conduct unlawful; an order certifying the proposed class, appointing plaintiff as representative of the proposed class, and appointing undersigned counsel as counsel for the proposed class; actual, statutory, treble, and all other damages available by law, along with pre- and post-judgment interest; attorneys’ fees and costs and all other relief that is just, equitable and appropriate.
The plaintiffs are represented by Kevin J. Abramowicz, Kevin W. Tucker, Chandler Steiger and Stephanie Moore of East End Trial Group, in Pittsburgh.
The defendant is represented by Devin Chwastyk and Rachel R. Hadrick of McNees Wallace & Nurick in Harrisburg, plus Daniel Jackson, Jonathon P. Reinisch and Zachary J. Watters of Vedder Price, in Chicago, Ill.
U.S. District Court for the Western District of Pennsylvania case 2:21-cv-01135
Allegheny County Court of Common Pleas case GD-21-008447
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com