In a precedential opinion released on February 27, 2018, a panel of the United States Court of Appeals for the Third Circuit held that consumers who were subjected to short-term online loans at interest rates in excess of 100% may proceed with a class action in federal court, rather than being forced into individual arbitrations. At the heart of the dispute is a $5000 online loan made to a New Jersey consumer by a California lender named CashCall. The loan purports to carry an annual interest rate of 116.73% and total finance charges of $35,994.28. Although the loan was processed via a series of intermediary entities, courts and regulators have found that CashCall was the true lender.

The lawsuit contends that the terms of this loan violate various state and federal banking, consumer protections, and racketeering laws. CashCall and its affiliates responded by arguing that an arbitration clause in the loan agreement that requires arbitration before an “authorized representative” of the “Cheyenne River Sioux Tribal Nation” prevents the lawsuit from moving forward as a class action in federal court. The Third Circuit rejected this argument, noting that the Cheyenne River Sioux Tribe does not have authorized representatives that conduct such arbitrations, and holding that the arbitration clause in the loan agreement is “unenforceable” because it requires arbitration before an “illusory forum.”

The plaintiff in the case is represented by Brock J. Specht of Nichols Kaster, PLLP and Matthew W.H. Wessler of Gupta Wessler PLLC. A copy of the Third Circuit’s opinion can be found here.