ERIE – A pair of in-state plaintiffs have alleged that a Delaware-based lender has violated Pennsylvania guidelines setting a cap on interest rates, and has filed class action litigation against that same lender.
Michele Happy of Erie County and Chad Gordon of Cambria County (individually and on behalf of all others similarly-situated) filed suit in the U.S. District Court for the Western District of Pennsylvania on Sept. 6 versus Marlette Funding, LLC (doing business as “Best Egg”), of Wilmington, Del.
“Pennsylvania ‘has a long history, dating back to colonial times, of outlawing annual interest rates above 6%.’ That history is codified in two laws: The Loan Interest and Protection Act and the Consumer Discount Company Act. These laws apply to non-bank lenders, and prohibit them from charging, collecting, contracting for or receiving interest and fees above 6% without a Pennsylvania license,” the suit says.
“Marlette is a non-bank that is not licensed under Pennsylvania law, but routinely issues loans to Pennsylvania consumers with rates that exceed Pennsylvania’s 6% cap. Marlette knows this conduct is unlawful, but to make it appear as though the laws applicable to non-banks do not apply, Marlette pays a state-chartered bank – Cross River Bank – to identify itself as the lender of the loans Marlette issues in Pennsylvania. Other than renting its name to Marlette, Cross River Bank has no real involvement in the loans Marlette makes to Pennsylvania residents. This is a ‘rent-a-bank’ scheme, and it is unlawful.”
The suit adds, quoting remarks from President Joe Biden, that “these schemes allow lenders to prey on veterans, seniors, and other unsuspecting borrowers…trapping them into a cycle of debt.”
“Marlette cannot evade Pennsylvania law by having a bank ‘listed as the nominal lender’ on Marlette’s loans contracts. This is well-established as a matter of state and federal law. Plaintiffs bring this action to recover the tens of millions of dollars in overcharges Marlette collectively caused plaintiffs and thousands of other Pennsylvania residents to pay,” the suit states.
In removing a similar class action suit to federal court in 2021, Marlette stated that
it overcharged at least 24,000 Pennsylvanians $30,000,000 of interest and fees above the LIPL and CDCA’s default 6% cap, with plaintiffs Happy and Gordon are two of the Pennsylvanians that were overcharged.
“On April 21, 2022, Happy obtained a ‘Best Egg’ branded loan. She visited www.bestegg.com to do so. After she entered her personal information, Marlette evaluated her creditworthiness and decided to issue her a loan. Marlette then held her loan and collected all of her payments. Happy’s loan was issued in the amount of $47,005. Marlette also charged Happy a $2,995 origination fee. Marlette then applied a 15.98% interest rate to the combined $50,000 balance of the $47,005 loan and the $2,995 origination fee. Happy made 13 payments on her loan: 12 payments of $1,215.37; and a thirteenth payment of $43,471.77. In total, it cost Happy over $58,000 to pay off a $47,005 loan in 13 months. That yields an annual percentage rate around 22%. Had Marlette charged Happy interest at the legal rate of 6%, it would have cost less than $50,000 for Happy to repay her loan in 13 months. Accordingly, Marlette’s overcharges caused Happy to pay at least $8,000 over the legal rate,” the suit continues.
“With respect to Gordon, he received three loans from Marlette: One for $4,713, one for $3,157 and one for $3,000. Gordon was charged origination fees on all three loans, and Marlette applied rates of 11.4% (to the $4,713 and $3,157 loan) and 12.8% (to the $3,000 loan) to the combined principle and origination fee balance. Gordon’s loans were paid off early (he repaid the $4,713 loan in five months, the $3,157 loan in 6 months, and the $3,000 loan in 1 month), so the effective annual percentage rates on his loans were much higher than the interest rates Marlette charged. In total, Happy and Gordon paid tens of thousands of dollars more in interest than they should have paid.”
For counts of violating the Unfair Trade Practices and Consumer Protection Law, violating the Loan Interest and Protection Law and violating the Consumer Discount Company Act, the plaintiffs are seeking:
• An order certifying the proposed class, appointing plaintiffs as representatives of the proposed class, and appointing undersigned counsel as counsel for the proposed class;
• An order awarding actual, statutory, treble and all other damages available by law, along with pre- and post-judgment interest;
• An order awarding restitution for all overcharges;
• An order awarding attorneys’ fees and costs;
• An order declaring defendant’s conduct unlawful; and
• An order awarding all other relief the court finds is just, equitable and appropriate.
The plaintiffs are represented by Kevin Abramowicz, Kevin W. Tucker, Chandler Steiger and Stephanie Moore of East End Trial Group, in Pittsburgh.
The defendant has not yet secured legal counsel.
U.S. District Court for the Western District of Pennsylvania case 1:23-cv-00265
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com