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Thursday, February 24, 2011

Florida Appellate Court Invalidates Class Action Waiver in Payday Loan Agreement

Florida Earlier this month, in McKenzie v. Betts, the District Court of Appeal of Florida (4th District) invalidated a class action waiver in a payday loan agreement on public policy grounds.  In summary, the court reasoned:

the record below supports the trial court‟s conclusion that consumers would not be able to obtain competent counsel in their actions against [the Defendant] for allegedly usurious rates on its payday loans if the claims could not be brought in a class action. Also, the waiver in this case would ban the borrower from being a member of a class action suit, even one initiated by an “enforcing authority” contemplated by statute. This result would prevent a consumer from vindicating the rights that consumer protection statutes are designed to create and nurture.

The decision had to address and reconcile the result with Fonte v AT&T Wireless, 903 So. 2d 1019 (Fla. 4th DCA 2005), which upheld a class action waiver in a cell phone contract.  The court stated:

[The defendant] invites us to read Fonte as creating a categorical rule that class action waivers do not violate public policy. We reject this invitation. Instead, we agree with the trial court that Fonte is distinguishable on its facts. In Fonte, the plaintiffs did not present the trial court with evidence that competent counsel would not represent individual plaintiffs on these small claims. Without such evidence, we could not say in Fonte that the class action waiver there violated public policy.

Here, however, the plaintiffs presented expert testimony from three Florida attorneys. The attorneys testified that Florida customers who wanted to challenge the practice of payday loan businesses would not be able to obtain competent representation absent the class action mechanism. This was because the issues were complex and time-consuming—and there was a substantial risk that a circuit court would award inadequate compensation at the end of a successful case. In our view, this evidence established that individuals could not secure competent representation to pursue small claims actions against [the defendant]. Indeed, one attorney testified that she had never been able to successfully refer a payday loan case to a private attorney.

Convincing distinction?  The law is just a mess on this issue.  That said, the decision does a nice job of collecting the cases on class action waivers and setting out a typology of class action waiver challenges.

McKenzie v. Betts, Nos. 4D08-493 and 4D08-494 (Fla. 4th DCA 2005 Feb. 2, 2011).

[Meredith R. Miller]

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