Andrea Felts was going through a costly divorce and needed some extra money to make ends meet. So she took out three online loans. When the lenders began charging illegally high interest rates, Felts filed a lawsuit and Public Justice joined her lead counsel.
The Internet payday loans came from what appeared to be different companies, all of which used nearly identical loan contracts. These contracts included arbitration provisions that stated Felts could never participate in a class action lawsuit.
The loans were for only $400 to $500 each, but the interest rates were so high -- 684, 730 and 521 percent, respectively -- that Felts, a high school administrator in Albuquerque, found herself trapped on a treadmill of debt. Though she had already paid back more than the original, and continued to make the payments that were required, she still owed a significant amount.
The State of New Mexico has laws capping the interest that can be charged on payday loans. But the payday lenders that loaned to Felts were not licensed with the state and refused to allow Felts to invoke the extended payment plan option so she could get out from underneath her debt. They even told Felts that they did not have to comply with New Mexico law.
When she was no longer able to make her payments, the lenders began to contact her repeatedly, both at work and at home. She sometimes received more than twenty calls a day, and her teenage daughter was subjected to harassing calls as well. The lenders went so far as to threaten Felts with jail.
Represented by Albuquerque attorney Rob Treinen, the Schaefer Law Firm of Minneapolis and Public Justice, Felts brought a class action lawsuit against these payday lenders to prevent them from continuing their unlawful lending enterprise and to seek return of the money that they had already collected from New Mexico consumers. Joining the class action were other New Mexico payday loan customers in a similar position to Felts: many were paying high rollover fees yet still weren’t chipping away at the principal.
The payday lenders argued that they could not be sued because a purported affiliation with a tribal entity placed them above state law. Yet, at the same time, they refused to allow Felts access to the documents that would show whether their tribal sovereignty claim was legitimate.
After the trial court decided that the supposed tribal affiliation did not prevent Felts from going forward with her lawsuit, the lenders decided they no longer wanted the court to be the decision maker and sought to enforce the arbitration provisions. The trial court rejected this tactic as well, ruling that the arbitration provisions were unenforceable because no consumer was likely to take on a lending enterprise with only a few hundred dollars at stake and with the complexity of legal issues involved. Unless the claims could proceed as a class action, there was no way to justify the significant time and money required to pursue such a lawsuit.
The lenders appealed the trial court’s refusal to enforce the class action ban and arbitration provisions, but in March 2011 a New Mexico Appeals Court affirmed the trial court’s decision and gave the go-ahead for Felts’ class to continue its lawsuit against the lenders.
New Mexico Attorney General Gary King and Assistant Attorney General Karen Meyers joined Public Justice in filing an amicus brief on behalf of Felts and the other plaintiffs.
Photo: KipMalone.com