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Court Invalidates Pay Day Lender Arbitration Agreement that Calls for Use of a Cheyenne Arbitration Forum That Doesn’t Even Exist

Companies have long been arguing that arbitration agreements are in the best interests of everyone involved, even when it seems pretty clear they only benefit the large corporations implementing and enforcing those agreements. District and federal courts across the country have been upholding all sorts of arbitration agreements between companies and their customers, even though the Federal Arbitration Act (FAA) was only intended for arbitration to be used as a means to settle disputes between businesses, not between businesses and individuals.

Because arbitrators work for for-profit companies, the outcome often is not objective when the arbitrator is under the thumb of the company. There are arbitration companies that have a reputation for being fair and objective, but when an arbitration agreement gives the company the right to choose the arbitrator (as these agreements sometimes do), the company is free to choose an arbitrator they feel confident will rule in their favor. If a company brings a lot of business to an arbitration company, the arbitrator may be influenced by that fact without even realizing it. Arbitration in many instances offers no explanation for a ruling and no opportunity to appeal the decision. Companies sometimes choose legal regimes that are unfair to consumers.

A Virginia district court recently ruled to uphold an arbitration agreement between Delbert Services Corp., a Nevada collection agency, and a class of payday loan borrowers.

The lead plaintiffs in the consumer class action lawsuit filed for claims against Delbert’s collection practices, including an alleged 140% interest rate. The district court ordered the class of plaintiffs to settle their disputes individually in arbitration, but the proposed class of plaintiffs appealed the ruling and the case went before the Fourth Circuit Court.

The circuit court overturned the ruling of the district court, stating that Delbert was using its arbitration agreement to deny consumers access to federal statutory rights, which is not what the FAA was intended to do.

Delbert filed a petition for another hearing, claiming the federal court’s ruling applied the wrong laws to the case, went against previous decisions made by the U.S. Supreme Court, ignored Native American tribal law, and could have disastrous effects on all sorts of arbitration agreements throughout the country. It further claimed that, by discouraging all arbitration agreements bearing a resemblance to the one in dispute, such a ruling would inhibit business have disastrous effects on America’s interests in the global economy.

The Fifth Circuit Court denied Delbert’s request, and pointed out that, although Delbert was collecting loans on behalf of Western Sky Financial, LLC, which is owned by a member of the Cheyenne River Sioux Tribe, Delbert itself has no tribal affiliations. The circuit court therefore found the collections company has no right to use arbitration agreements asking to use a Cheyenne Nation Arbitration forum that did not even exist in an attempt to avoid federal law.

Although the Supreme Court has not yet ruled specifically on arbitration agreements between companies and consumers, many courts throughout the country (both district and federal) have been ruling in favor of the companies enacting the arbitration agreements. Cases like this one, where rulings go back and forth as the decisions get appealed, exemplify the need for the Supreme Court to make a final decision regarding whether companies can force their own customers to settle all their disputes in arbitration.

Our Niles, Illinois consumer rights private law firm handles individual and class action gift card, data breach, privacy rights, deceptive advertising, predatory lending, unfair debt collection, lemon law and other consumer fraud cases that government agencies and public interest law firms such as the Illinois Attorney General may not pursue. Class action lawsuits our law firm has been involved in or spear-headed have led to substantial awards totalling over a million dollars to organizations including the National Association of Consumer Advocatesthe National Consumer Law Center, and local law school consumer programs. The Chicago consumer lawyers at DiTommaso-Lubin are proud of our achievements in assisting national and local consumer rights organizations obtain the funds needed to ensure that consumers are protected and informed of their rights. By standing up to consumer fraud and consumer rip-offs, and in the right case filing consumer protection lawsuits and class-actions you too can help ensure that other consumers’ rights are protected from consumer rip-offs and unscrupulous or dishonest practices.

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