ERIE – A pair of in-state plaintiffs who alleged that a Delaware-based lender has violated Pennsylvania guidelines setting a cap on interest rates are now rejecting an attempt to have their class action litigation against that same lender sent to arbitration.
Michele Happy of Erie County and Chad Gordon of Cambria County (individually and on behalf of all others similarly-situated) first 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 said.
“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 added, 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 stated.
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 continued.
“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.”
On Dec. 4, Marlette Funding, LLC motioned to compel individual arbitration in the matter, citing language contained in the original loan agreements where the plaintiffs agreed to arbitrate any disputes and New Jersey state law.
“During the application process, the written loan agreements were made available to plaintiffs, and plaintiffs confirmed that they reviewed the loan agreements and accepted their terms. The loan agreements all contain a broad, unequivocal, and conspicuous arbitration provision that bars the assertion of plaintiffs’ claims in this Court. Therefore, the Court should grant Marlette’s motion to compel individual arbitration, order plaintiffs to individually arbitrate their claims, and dismiss this case. The Federal Arbitration Act establishes a strong federal policy in favor of the resolution of disputes – including the instant dispute – through arbitration. Plaintiffs’ lawsuit relates to the loan agreements they entered into with Marlette,” according to the arbitration motion.
“These loan agreements each contain an arbitration provision requiring (if invoked) the arbitration of any ‘claim,’ which is defined to include ‘any past, present, or future claim, dispute, or controversy’ involving the parties to the loan agreement or their assignees ‘relating to or arising out of [the loan agreement] and/or the activities or relationships that involve, lead to, or result from [the loan agreement], including…the validity or enforceability of this arbitration provision, any part thereof, or the entire [loan agreement]. In the arbitration provision of the loan agreements, while plaintiffs acknowledged their right to litigate disputes in court, they nevertheless knowingly and voluntarily waived that right as a term of the loan agreement. They also waived any right to arbitrate disputes on a class-wide basis related to the loan agreement. Plaintiffs do not dispute entering into valid and enforceable loan agreements, and Marlette is therefore entitled to enforce all of the provisions thereof, including but not limited to the arbitration provision.”
The defendant also labeled the claims in this case as “clearly arbitrable.”
“In the complaint, plaintiffs assert that Marlette violated the Pennsylvania Uniform Trade Practices and Consumer Protection Law, the Loan Interest and Protection Law and the Consumer Discount Company Act, by allegedly charging an interest rate in excess of limits set by Pennsylvania law. Plaintiffs’ claims squarely fall within the plain terms of the arbitration provision. Plaintiffs’ claims are statutory claims relating to and arising out of the loan agreements and the activities and relationships involving and resulting from the loan agreements and are thus subject to arbitration. Accordingly, the Court should grant the motion, require plaintiffs’ claims to be arbitrated on an individual basis, and dismiss this case,” the arbitration motion added.
UPDATE
In a Dec. 18 oppositional response, the plaintiffs refuted the defendant’s attempt to have the case rerouted to arbitration.
“The Court should reject that claim because plaintiffs did not agree to arbitrate their claims, and they did not knowingly waiver their constitutional rights. A party seeking to waive another’s constitutional rights must prove that the waiver was a voluntary, knowing, and intelligent act that was undertaken with full knowledge of its consequences. To make that showing in Pennsylvania, a party must show that its website specifically disclosed to internet users that their constitutional rights would be waived by proceeding with a transaction. Marlette did not do that here, meaning it cannot arbitrate plaintiffs’ claims. Marlette argues that this waiver-of-constitutional-rights rule should not apply but, as explained herein, Marlette is wrong,” the response brief stated, in part.
“Moreover, in addition to not agreeing to waive their constitutional rights, plaintiffs took no action to unambiguously manifest assent to the terms that Marlette now seeks to enforce. Marlette required plaintiffs to check a box indicating their assent to an ‘E-Sign Act Consent’ agreement. Below that checkbox, Marlette included a separate paragraph discussing the contract that Marlette now seeks to enforce, but Marlette did not place a checkbox next to that paragraph. Plaintiffs, therefore, checked no box to indicate their assent to the agreement that Marlette seeks to enforce against plaintiffs. As a result, even if Pennsylvania’s waiver-of-constitutional-rights rule does not apply, plaintiffs still are not required to arbitrate their claims because plaintiffs took no action to unambiguously manifest assent to do so.”
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 is represented by Alex Mahfood and Justin J. Kontul of Reed Smith, also in Pittsburgh.
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