Court Certifies Class of Consumers in Payday Lending Suit

Financial Services Law

A federal court in Minnesota has certified a class of consumers suing a lead generator and related payday lenders for violations of state law, rejecting the defendants’ concerns that the damages calculations would require individual inquiries.

The plaintiffs alleged that the defendants sold 27,887 leads regarding Minnesota consumers to lenders over an eight-year period even though the lenders were not licensed in the state to arrange loans.

What happened

Using television and Internet-based advertising (with the help of celebrity spokesperson Montel Williams), as well as direct marketing, the defendant lead generator promoted its website, where consumers can submit applications for payday loans.

From about August 1, 2009, until around October 2016, the website advertised to consumers that they could secure loans “as soon as tomorrow” in amounts up to $1,000. The website did not disclose to potential borrowers that the lenders are not licensed in Minnesota or that the loans offered may be illegal in the state.

After consumers provided their information—including name, bank account information, income, employment status and next payday—the defendant lead generator connected the leads to its network of lenders. Once consumers were matched with a lender, the consumer’s web browser automatically redirected to the matched lender’s website and the consumer received an email from the lender.

From September 29, 2009, to October 19, 2017, the defendant lead generator sold approximately 27,887 unique Minnesota consumer leads. None of the defendant lenders are licensed to arrange for loans in the state, and the loans offered by the lenders typically have an APR of between 261 and 1,304 percent for a 14-day loan.

In May 2010, the Minnesota attorney general notified the defendant lead generator that it was subject to the restrictions under Minnesota law because it had arranged loans to Minnesota residents. Based on the loans being offered, the defendant lead generator was aiding and abetting lenders that violated Minnesota law, the AG said. A nearly identical letter was sent in 2012, but the lead generator did not respond to either missive.

Minnesota state law limits the interest rates and fees that payday lenders can charge, requires disclosures to consumers about the loan and the borrower’s obligations, restricts the duration of payday loans to no greater than 30 days and mandates that payday lenders be licensed by the Minnesota Commissioner of Commerce.

Each of the five named plaintiffs visited the defendant lead generator’s website from a computer in Minnesota, submitted their Minnesota address and banking information, and were matched with a lender that provided a loan with a principal amount under $1,000. They moved to certify a class of similarly situated residents dating back to August 1, 2009.

The defendant opposed certification. While the lead generator did not dispute that the proposed class satisfied the numerosity requirement or the adequacy of the proposed class counsel, it argued that the named plaintiffs did not adequately represent the interests of the class and failed to demonstrate the issues are susceptible to proof on a classwide basis and that a class action was not the superior method to adjudicate the controversy.

U.S. District Judge Donovan W. Frank disagreed.

The plaintiffs identified several issues that were capable of classwide resolution and predominated over any issues facing only individual class members, such as whether the defendants violated state law by arranging for loans without obtaining a license, or with unlicensed lenders; whether the defendants’ conduct constituted a deceptive practice under state law; and whether defendants conspired with and/or aided and abetted the lenders to make illegal loans.

“As Plaintiffs argue, the key issues of fact and law proposed for class treatment can be addressed through common proof,” the court wrote. “Although there are some individualized issues, they do not predominate over the common issues for those claims for which certification is sought.”

The core of the defendants’ liability is based on their actions relating to the information they provided on the website and their alleged arranging of consumer short-term loans within the meaning of state law, Judge Frank explained.

Even the damages issue could be solved, the court said. Although the amounts that class members paid to lenders require an individual inquiry, the plaintiffs have requested statutory damages and punitive damages, which can be calculated on a classwide basis. They also demonstrated that it was possible to track the sale of an individual consumer’s information to a lender and then cross-reference it with the consumer’s bank records to determine the amounts that class members paid to the lenders.

This strategy “will not overwhelm the liability and damages issues capable of class-wide resolution,” the court said.

Judge Frank rejected the defendant’s contention that the named plaintiffs were inadequate class representatives, in part because their financial vulnerability would incentivize them to take a quick payday rather than truly represent the best interests of the class.

“Here, the issues that Defendants raise in attacking Named Plaintiffs’ adequacy concern their financial difficulties, which make them typical and representative of people who obtain payday loans,” the court said. “[T]o the extent that Defendants suggest Named Plaintiffs’ financial issues will affect the prosecution of their case, the Court finds that such issues are purely speculative and further finds that Named Plaintiffs’ financial statuses have not caused any problems with the litigation to this point.”

Concluding that a class action is the superior method for adjudicating the plaintiffs’ claims, the court certified a class of Minnesota consumers that used the defendant lead generator’s website to obtain a loan with a principal amount under $1,000 dating back to August 1, 2009.

To read the memorandum and order, click here.

Why it matters

The Minnesota court was not persuaded by the lead generator’s argument that potentially individualized damages precluded class certification. Not only were the liability issues and other damages capable of classwide resolution, but the plaintiffs offered a solution for determining individual damages that the court found workable. The court also frowned on the defendant’s attempt to argue that the named plaintiffs were inadequate class representatives because of their financial situation. In actuality, the named plaintiffs are “typical and representative of people who obtain payday loans,” Judge Frank wrote.