NEW YORK (Legal Newsline) – A federal judge has ordered a class action lawsuit targeting online loan
to arbitration on Jan. 30.
An appeal is
still possible, but the decision basically strips the plaintiffs of
class-action status and forces each individual plaintiff in the suit to go
through the arbitration process individually.
The suit, Bethune v. Lending Club Corp., et al., filed
by New York resident Ronald Bethune, accused online loan providers LendingClub
and WebBank of violating state usury laws and the federal Racketeer Influenced
and Corrupt Organizations Act by charging high interest rates to consumers
seeking a loan.
According to the complaint, "LendingClub improperly attempted to
circumvent the application of relevant state usury laws to such
loans by contracting with defendant WebBank, a bank with a Utah
state charter, to act as a “pass through” for LendingClub’s loans." Utah does not have a usury protection law.
The complaint also contended that "Lending Club
Corp. developed an $8 billion dollar consumer lending business based on
cutting out the banks from the personal consumer loan process, and replacing it
with an internet-based matching system where private investors fund private
borrowers’ personal loans, with LCC assuming the role of the bank to facilitate
and service the loans.”
case, he states he borrowed $33,250 at a nearly 30 percent interest rate to be paid over
five years. In the complaint, he said the rate exceeded the state’s usury law
limits and was illegal.
practice, LendingClub and Utah-based WebBank pointed to an arbitration clause
in the loan agreement that preempted class action and required complainants to
use the federal arbitration process to resolve any disputes. The clause also
provided an opt-provision for arbitration.
The court found there was "'clear and unmistakable
evidence from the arbitration agreement" signed by Behthune that should have made him aware of the arbitration clause.
The judge used
the Federal Arbitration Act to reach the decision, citing several provisions
affecting the questions in the case.
The judge in the
case ruled against Bethune’s argument that the process and arbitration language
the judge cited Section two of the Act, which says: “A written provision in...a contract evidencing a transaction involving commerce to settle by
arbitration a controversy thereafter arising out of such contract or
transaction,...shall be valid, irrevocable, and enforceable, save upon such
grounds as exist at law or in equity for the revocation of any contract.”
The judge said
in the decision that “the Federal Arbitration Act reflects an emphatic federal
policy in favor of arbitral dispute resolution.”
The judge said the act allows for an
exception, but the plaintiff would have to challenge the arbitration clause,
, not the contract as a whole, as
unconscionable for the courts to become involved.