LOS ANGELES (Legal Newsline) - While it awaits the results of an appeal, ZestFinance - a company founded by the former chief information officer of Google - is facing another claim over payday loans that allegedly featured triple-digit interest rates.
The most recent lawsuit was filed by a Houston woman in Los Angeles federal court against ZestFinance Inc.; its founder, former Google executive Douglas Merrill; and BlueChip Financial, claiming the defendants engaged in making so-called payday loans at excessive interest rates.
The Houston woman's lawsuit is similar to another woman's class action suit that was filed earlier in U.S. District Court for the Western District of Washington against the same defendants that claims she was charged excessive interest rates on payday loans involving a Native American tribe.
In the Washington case, U.S. District Judge Robert J. Bryan rejected motions by the defendants to require the woman, Teresa Titus, to go through arbitration, allowing the case to proceed in court.
In their motion, the defendants argued that the loan agreements specified that any dispute would go to arbitration. Titus argued that the arbitration clause in the loan is unenforceable because it circumvented federal and state laws.
The issue is on appeal at the U.S. Court of Appeals for the Ninth Circuit.
Titus' suit alleges that the defendants are part of a "rent-a-tribe scheme" for making payday loans.
Non-tribal entities ZestFinance and Merrill allegedly provided the capital, marketing, underwriting and other resources for BlueChip Financial, doing business as Spotloan.
Spotloan is organized under the laws of the Turtle Mountain band of Chippewa Indians and makes usurious loans to Washington residents and to persons located throughout the United States, the suit alleges.
The suit further alleges that, under a rent-a-tribe scheme, a payday lender – typically one that does most of its lending over the internet – affiliates with a Native American tribe to circumvent federal law.
The suit alleges that borrowers were charged rates above what is allowed in Washington – as high as 490% annual interest.
"Construing the contract as a whole, giving meaning to each provision, it appears that the intent of the contract is that the Turtle Mountain Band of Chippewa Indians law applies, to the exclusion of federal and state law, except where those laws are specifically mentioned as applying to the contract," Bryan said in his court ruling denying arbitration.
Bryan wrote that the defendants' "choice-of-forum and choice-of-law clauses operate as a prospective waiver of a party’s right to pursue federal statutory remedies, and so the arbitration clause is invalid."