FTC Files Amicus Brief Supporting Class Action Suit that Challenges Payday Lender’s Arbitration Practices

The Federal Trade Commission filed an amicus brief in the U.S. Court of Appeals for the Seventh Circuit supporting a class action lawsuit brought by consumers who are challenging a payday lender’s practice of requiring them to submit to arbitration at a Native American reservation in South Dakota.

The FTC has an interest in the class action case because, in a separate action, the agency has sued the payday lender, Payday Financial, LLC, for unfair and deceptive collection practices in connection with its attempts to garnish consumers’ pay checks.  The agency expanded the case against Payday Financial to allege unfair and deceptive conduct associated with its practice of filing collection suits against consumers in the Cheyenne River Sioux tribal court, which allegedly lacked jurisdiction.  The case remains in litigation.

The amicus brief argues that although arbitration is not an issue in the FTC’s case, the Commission’s allegations are relevant to the issue raised in the class action case -- specifically, whether the defendants can legally compel consumers to submit to tribal arbitration.

“For the vast majority of consumers, who can little afford the expense, travel to the Reservation to participate in either arbitral or court proceedings is simply infeasible,” the brief states.

The brief notes that as a general matter, Native American tribes and tribal courts have legal authority over their own members and not over non-members, unless non-members conduct activities inside the reservation or enter into a commercial relationship with the tribe or a member of the tribe. According to the brief, consumers who take out payday loans from these companies do so via the Internet, and they do not conduct business on the reservation.

To learn more about alternatives to payday loans, see Payday loans. 

The FTC vote to join the amicus brief filing was 4-0.

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