Fifth Circuit Holds Payday Lender Waived Right to Arbitration
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In a 2-1 decision, the nation’s Fifth Circuit Court of Appeals has ruled a payday loan lending company that sought criminal charges against customers who failed to repay their loans waived its right to arbitration by substantially invoking the judicial process. In Lucinda Vine, et al. v. PLS Financial Services, Inc., No. 16-50847 (5th Cir., May 19, 2017), a Texas payday lender, PLS, provided short-term loans to two customers, Vine and Pond, in exchange for a fee. Before the loan was provided, each customer signed a credit services agreement that included an arbitration provision. As part of the loan process, the customers also provided PLS with post-dated checks.
Both customers later defaulted on their payday loans and PLS unsuccessfully attempted to cash the post-dated checks. After the checks were returned for insufficient funds, PLS submitted a worthless check affidavit for each customer to the local district attorney’s office. Next, the district attorney’s office advised the customers via letter that they would face criminal prosecution if they did not pay restitution to PLS.
In response to PLS’s worthless check affidavit, Vine and Pond filed a class-action lawsuit against the payday lender. According to the customers, PLS violated Section 392.301 of the Texas Finance Code and certain provisions of the Texas Deceptive Trade Practices Act. In their complaint, the customers also accused PLS of engaging in malicious prosecution and fraud.
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