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Posted: June 17, 2014

“Payday” Loan Recipients Compelled To Arbitrate RICO Claims

The strong federal presumption in favor of enforcing arbitration clauses is well known. In Moss v. BMO Harris Bank, N.A., 13 CV 5438 (JFB)(GRB), Judge Bianco reaffirmed just how strong it is. The case is a putative class action asserting civil RICO claims based on defendants’ alleged role in facilitating “payday” loans, which are short-term, high fee, closed-end loans made to consumers to provide funds in anticipation of an upcoming paycheck.

Plaintiffs signed loan agreements with various online lenders that contained arbitration clauses. The defendants were neither parties to the loan agreements nor mentioned by name in the agreements. But the defendants, who facilitated the funds transfers connected with the loans, nevertheless moved to compel arbitration on the theory that the plaintiffs had agreed to arbitrate disputes against the lenders’ “agents” and “servicers.” Plaintiffs argued that the arbitration provisions did not place them on notice that they were consenting to arbitrate with defendants.

The court disagreed with plaintiffs. Judge Bianco applied a “two-part intertwined-ness test” to determine whether plaintiffs were sufficiently put on notice of their agreement to arbitrate. First, the court had to determine whether plaintiffs’ claims arose under the subject matter of the underlying agreements. It had little trouble concluding that they did. Second, the court had to determine whether there was a “close relationship” between the plaintiffs and non-signatory defendants. While this was a closer question, the court held that the loan agreements’ references to “agents” and “servicers” implicitly described the services provided by defendants. Therefore, it was foreseeable to plaintiffs that they had agreed to arbitrate claims against the defendants, especially because the agreements explicitly referred to the electronic funds transfer process. Thus, the court compelled arbitration and stayed the federal court case.

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