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State Supreme Court Hears Payday Lender Arbitration Case

  • State Supreme Court Hears Payday Lender Arbitration Case

    State Supreme Court Hears Payday Lender Arbitration Case

    A state Supreme Court in Texas will soon hear a case between a payday lender and some of its customers who allege that the company waived their arbitration agreements after filing criminal charges against a number of borrowers.
    The company, Cash Biz, is an organization which provides payday loans to individuals. As part of their regular practice, Cash Biz require a borrower to post-date a check for the amount of the loan and any charges. If a borrower defaults on the loan or is unable to pay, Cash Biz, and other similar companies, cash the check to fulfill the loan. WIthin the agreement signed for this process, borrowers agree to give up their right to go to trial over a dispute that involves the loan.
    Within the case at hand, a number of plaintiffs obtained loans from Cash Biz and then defaulted on their payments. Cash Biz cashed the checks that were provided but the checks were declined, leading to criminal charges of writing a bad check. Some charges were dropped but a number of borrowers were affected, involving detainment and jail time.
    The plaintiffs filed a class action case against Cash Biz and said that the company wrongfully used the criminal justice system to try and collect on the loans, accusing the company of malicious prosecution and fraud. Cash Biz then filed a motion to compel arbitration, pointing to the arbitration clauses in agreements signed by the borrowers as a reason to have the case dropped from state courts.
    The trial court originally denied Cash Biz’s motion to compel arbitration, stating that the lending business waived its right to arbitration by filing criminal charges and participating in the subsequent trials. However, on appeal, the court reversed the original decision, stating that the actions by the plaintiffs still fell within the arbitration agreement and filing a criminal complaint is not, by itself, an act that invoked the judicial process. The plaintiffs appealed with the argument that Cash Biz knew that using criminal law to pursue debts is illegal, as well as intentionally ignoring its own arbitration clauses in the pursuit of repayment. Cash Biz stated that its actions were consistent with federal and state law.