The Texas Supreme Court will decide whether a payday lender waived the civil litigation arbitration agreements it had with its customers by filing criminal charges against them and landing some of the borrowers in jail.
Cash Biz provides payday loans. As is normal practice with payday loans, Cash Biz required borrowers to provide a post-dated check in the amount of the loan plus the finance charge. If a borrower defaulted, Cash Biz deposited the post-dated check to satisfy the loan.
As part of the process for obtaining a loan, borrowers signed a written agreement containing an arbitration provision in which they agreed to give up their right to go to court over any dispute involving the loan and prevented the arbitrator from hearing class arbitration cases.
The plaintiffs in the case obtained loans from Cash Biz and subsequently defaulted on their repayment obligations. Cash Biz attempted to deposit their posted-dated checks but the checks were declined for insufficient funds.
Cash Biz later filed bad check criminal charges against the borrowers. The criminal charges were eventually dismissed against some of the borrowers but several were arrested and detained and were assessed jail time as punishment.
The plaintiffs filed a class action case against Cash Biz in a Texas state court and alleged the payday lender wrongfully used the criminal justice system to collect the payday loans in violation of the Texas Finance Code, malicious prosecution and fraud among other things.
Cash Biz responded by filing a motion to compel arbitration under the contracts they had with the plaintiff borrowers in order to remove the case from state court.
The trial court denied Cash Biz’s motion to compel arbitration after concluding the lender had waived its right to arbitration by filing criminal charges against the plaintiffs and participating in criminal trails to collect from them.
But on appeal, the court reversed the trial court’s decision, reasoning that because the plaintiffs’ actions fell within the scope of the arbitration agreement and that Cash Biz’s filing a criminal complaint was not an act that substantially invoked the judicial process.
“Cash Biz’s filing of a criminal complaint does not rise to the extent of active engagement in litigation that Texas courts have consistently held to be specific and deliberate actions inconsistent with a right to arbitrate or that display an intent to resolve a dispute through litigation,” wrote Justice Jason Pulliam.
The plaintiffs appealed the decision to the high court, arguing Cash Biz knew that using criminal laws to pursue debts is illegal and ignored their own arbitration clauses by filing criminal charges against its borrowers.
“Allowing payday loan companies to ignore their own arbitration clauses and file criminal charges against their customers conflicts with the Texas Constitution, the FAA, and the laws of this state,” the plaintiffs argued in their petition for review in the case.
And on June 23, the high court granted the case for review.
In its response to the plaintiff’s petition, Cash Biz noted that the payday lending business model has been the focus of recent public criticism and that attention brought to its case by the plaintiffs and consumer advocate amici have reinforced that negative image.
But Cash Biz argues that the Fourth Court’s decision should be upheld because it is consistent with both federal and Texas law in enforcing arbitration and waiver of class action provisions.