The Fourth Court of Appeals in San Antonio derailed a class action lawsuit aimed at keeping payday lenders from using the state’s criminal justice system as de facto collection agencies.
The suit filed by 1,400 plaintiffs argued that Cash Biz, a payday lender, illegally used district attorney offices to file criminal charges against debtors. Under the ruling, the plaintiffs will now have to settle their disputes with the firm through individual arbitration.
“This is a devastating opinion,” Daniel Dutko, attorney for the plaintiffs, said in an interview with the Observer. “[It] basically means that payday loan companies can do anything they want and send the cases to individual arbitration where nothing bad will happen except maybe a slap on the wrist.”
In 2013, the Observer was the first to report that Cash Biz and other payday lenders, in violation of state law, were using courts and prosecutors to extract payment from their customers by wrongfully filing criminal charges against them for writing “hot (illegal) checks.”
Under Texas state law, writing a post-dated check to a lender that bounces is not the same as writing an illegal check. When post-dated checks bounce, lenders are supposed to negotiate payment with customers. In fact, state laws forbid payday loan companies from even threatening to pursue criminal charges against their customers, except in unusual circumstances.
But the Observer investigation found at least 1,700 instances in which Texas payday loan companies filed criminal complaints against customers in San Antonio, Houston and Amarillo. In at least a few cases, people landed in jail because they owed money to a payday loan company.
A copy of the opinion is here. I Am Not A Lawyer, so maybe there’s some sound legal reason for this, but on its face it sounds terrible. Forced arbitration clauses are a racket, and even the idea of jailing someone for owing money to a payday loan company is repugnant. If I thought there was a chance the Legislature might address this, I’d be less concerned, but despite bipartisan support for statewide regulations on payday lenders, nothing has happened and nothing is likely to. This just sucks.
By the way, since I have mentioned the appeals court races as an underappreciated target for Democrats this November, I will note that the judge who wrote the majority opinion, a 2015 appointee by Greg Abbott to the 4th Court of Appeals, is on the ballot in Bexar and other counties. The dissenting judge was one of three Democrats (out of five races total) to be elected in 2012. Like I said, opportunities.