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Jan 2000 / Accord Tossed: Class Members Got Nothing

Copyright 2000 Law Bulletin Publishing Company Chicago Daily Law Bulletin

January 4, 2000, Tuesday

SECTION: Pg. 1

LENGTH: 1195 words

HEADLINE: Accord tossed: Class members got nothing

BYLINE: PATRICIA MANSON; Law Bulletin staff writer

BODY:

Suggesting that the plaintiff attorney and the class representative in a debt-collection lawsuit were trying to benefit themselves at the expense of class members, a federal appeals court panel has tossed out a settlement reached in the action.

In an opinion Monday, a panel of the 7th U.S. Circuit Court of Appeals also criticized the magistrate judge who approved the settlement in a class-action lawsuit accusing Equifax Check Services Inc. of violating the Fair Debt Collection Practices Act.

The panel said the only thing the settlement would have done for many of the class members would have been to cut them off at the knees.”

The settlement called for the named plaintiff, Lawrence Crawford, to receive $ 500 in damages and a $ 1,500 incentive award” for serving as the class representative, the panel said.

The panel said the settlement also called for Equifax to pay reasonable attorney fees — later determined to be $ 78,000 — for the services of Crawford’s lawyer, Christopher V. Langone of Chicago.

Other terms of the settlement included Equifax’ agreement to never again use the form letters that the plaintiffs claimed violated the law and to donate $ 5,500 for the Legal Clinic of Northwestern University Law School to use in protecting consumers’ rights, the panel said.

The panel said the settlement also allowed class members other than Crawford to pursue their own lawsuits against Equifax — so long as those suits did not proceed as class actions.

The panel noted that the settlement did not provide for monetary damages for any of the approximately 214,000 unnamed class members whose interests Crawford was designated to represent.

And the panel said those class members were not personally notified of the class certification or the settlement and were not allowed to opt out of the settlement.

Even without considering the lack of notice or an opt-out provision, the panel said, the settlement is substantively troubling.”

Crawford and his attorney were paid handsomely to go away; the other class members received nothing (not even any value from the $ 5,500 donation’) and lost the right to pursue class relief,” Judge Frank H. Easterbrook wrote for the panel.

The panel reversed an order by U.S. Magistrate Judge Sidney I. Schenkier approving the settlement under Rule 23(e) of the Federal Rules of Civil Procedure.

The panel also reversed an order in which Schenkier had blocked two people pursuing separate class actions against Equifax from intervening in the suit filed by Crawford in order to object to the settlement.

Joining in the opinion were Chief Judge Richard A. Posner and Judge Ilana Diamond Rovner.

Lawrence Crawford v. Equifax Payment Services Inc., et al., Nos. 99-1973 and 99-2122.

Both Langone and Chicago attorney David L. Hartsell, who represented Equifax in the suit, said Tuesday that they were disappointed by the panel’s decision.

Langone said the relief contained in the settlement would have fulfilled the primary purpose of the Fair Debt Collection Practices Act, 15 U.S.C. sec1692, to bring a halt to abusive and unfair debt-collection practices.”

But if the act is interpreted to deny the kind of injunctive relief sought by the plaintiffs under Rule 23(b)(2) of the Federal Rules of Civil Procedure, Langone said, that strikes a blow to consumer rights.”

And Langone said that a monetary settlement in the case would have netted each class member only a dollar or two in damages — damages that would have been reduced to zero once Equifax exercised its setoff rights.

Hartsell also noted that the class members would have been limited by the Fair Debt Collection Practices Act to a minimal amount of damages.

But under the settlement hammered out by the attorneys with the help of Schenkier, class members could have filed their own suits seeking up to $ 1,000 in damages, Hartsell said.

In June 1997, Crawford filed the suit that led to Monday’s decision by the 7th Circuit panel. Beverly Blair brought a similar action six months later and Latressa Wilbon filed a third in August 1998.

The panel said all three plaintiffs sought to represent a class of debtors who had received letters from Equifax that allegedly violated certain provisions of the Fair Debt Collection Practices Act.

The Blair and Wilbon suits were consolidated before U.S. District Judge Paul E. Plunkett, who in February 1999 certified both as class actions, the panel said.

The panel said Schenkier a week later certified Crawford’s suit as a class action and, at the same time, tentatively approved the settlement in the case.

Because the Crawford class included all members of the Blair and Wilbon classes, Equifax asked Plunkett to decertify the classes in the consolidated case, the panel said.

The panel said Plunkett declined to take that step in a decision that was affirmed by the 7th Circuit. Blair v. Equifax Check Services Inc., 181 F.3d 832 (1999).

A few weeks after the settlement in the Crawford suit was tentatively approved, Blair and Wilbon attempted to intervene in the case because they deemed the settlement terms inadequate, the panel said.

The panel agreed with that assessment, saying that class members other than Crawford receive no relief for harms that may already have been done”

They gain nothing (the settlement does not include a concession of liability that would facilitate individual suits), but lose something: the possibility of any collective proceeding for damages,” the panel said. Because these are small-stakes cases, a class suit is the best, and perhaps the only, way to proceed.”

But Schenkier blocked Blair and Wilbon from challenging the settlement when he refused to allow them to intervene in the case, the panel said.

The panel said Schenkier determined that Blair and Wilbon had waited too long to file their motions to intervene. Schenkier also concluded that allowing the two to intervene would cause prejudice” by upsetting the settlement, the panel said.

Schenkier was wrong on both counts, the panel said.

The panel said unnamed class members seldom have any reason to intervene until learning of the terms of a (potentially inadequate) settlement or problems in the class definition.”

And while acknowledging that an appeal by Blair and Wilbon ultimately could lead to the rejection of the settlement, the panel said that is the way the system is supposed to work.

The possibility that we would see merit to their appeal cannot be called prejudice’; appellate correction of a district court’s errors is a benefit to the class,” the panel said.

The panel said Schenkier also erred in approving the settlement.

Magistrate Judge Schenkier concluded that Crawford’s attorney was a vigorous champion of the class, despite the appearance that for $ 78,000 he sold out the class,” the panel said. Even so, the fact that one class member receives $ 2,000 and the other 200,000+ nothing is quite enough to demonstrate that the terms should not have been approved under Rule 23(e).”

LANGUAGE: ENGLISH

LOAD-DATE: January 5, 2000

Copyright 1999 Andrews Publications, Inc. Bank & Lender Liability Litigation Reporter

December 1, 1999

SECTION: Vol. 5; No. 7; Pg. 9

LENGTH: 725 words

CASE: Truth in Lending Act: Pinkett v. Moolah Loan Co.

HEADLINE: ND IL Allows Suit Against Consumer Lender to Proceed as Class Action

BODY:

The U.S. District Court for the Northern District of Illinois has granted a plaintiff’s motion for class certification in a suit asserting that a consumer lending company violated the federal Truth in Lending Act (TILA) and Illinois state law. The suit, which contends that loan documents were unclear, also survived a motion to dismiss for failure to state a claim. Pinkett v. Moolah Loan Company et al., No. 99C2700 (ND IL, Nov. 1, 1999).

Plaintiff Rodney Pinkett took out a short term loan from Moolah Loan Company, under the terms of which he was to be charged interest at the rate of 365 percent. He also provided a post-dated check in order to obtain the loan.

The finance charge and the annual percentage rate were not set forth more conspicuously than other terms on the loan documents, and the documents did not adequately disclose what security interest the lender had. As such, Pinkett sued Moolah in the U.S. District Court for the Northern District of Illinois, asserting violations of TILA, 15 U.S.C. Sec. 1601 et seq., and Illinois state law. Pinkett then sought certification as a class action, desiring to include all borrowers who signed promissory notes with Moolah between April 23, 1998, and April 23, 1999.

Moolah moved to dismiss the suit.

The district court discussed class certification first, outlining the criteria necessary. Under the Federal Rules of Civil Procedure, plaintiffs seeking certification must satisfy four requirements, including numerosity, commonality, typicality, and adequacy of representation, the judge explained.

The numerosity requirement provides that the class must be composed of a large number of persons so that joinder is impracticable, the district court said. Pinkett did not provide an exact number of potential plaintiffs, but alleged that common sense dictated that the requirement was met, the judge said. Since the defendant did not contest this assertion, numerosity existed, the judge held.

Turning to the commonality prerequisite, the district court stated that there must be questions of law or fact that are common to all class members. This condition was satisfied, the judge decreed, because Moolah engaged in standardized conduct.

In discussing typicality, the court said that a plaintiff’s claim is typical if it arises from the same event giving rise to the claims of other class members, and the claims are all based on the same legal theory. Pinkett’s claims were typical, the judge ruled. The court arrived at this conclusion after rejecting Moolah’s argument that class members would have individual claims concerning damages, and would have individual inquiries concerning the alleged unconscionability of the loans.

The last condition discussed by the court was that of adequacy of representation. The judge stated that a class representative cannot have claims that conflict with those of other class members, and the representative must have a sufficient interest in the outcome which will enable him or her to act as a vigorous advocate. Further, the counsel representing the class representative must be experienced and competent, the judge elaborated. Pinkett satisfied this condition, the district court held, and, since all criteria were fulfilled, the motion for class certification was granted.

Moolah’s motion to dismiss was then evaluated. The district court stated that Moolah asserted that the complaint failed to state a claim, and further argued that the court did not have subject matter jurisdiction over Pinkett’s state law claims. The judge reviewed the loan documents and noted that the finance charge and the annual percentage rate were not more conspicuous than the other loan terms, as was required by the TILA.

In addition, Pinkett claimed statutory damages under the TILA, the judge said. Contrary to Moolah’s assertion, Pinkett did not have to allege actual damages, the court continued. Further, there was a duty to disclose the fact that the post-dated check Pinkett provided was being held as security, the court said. Pinkett’s suit stated a claim upon which relief could be granted, the judge held. Therefore the state law claims would fall under the court’s supplemental jurisdiction, the judge said.

The motion to dismiss was denied.

(See Document Section H for the opinion.)

LANGUAGE: ENGLISH

LOAD-DATE: January 4, 2000

EDELMAN, COMBS & LATTURNER SUES MORE HIGH-INTEREST LENDERS

The Chicago law firm of Edelman, Combs & Latturner has filed class action lawsuits against four more high-interest “payday lenders,” three in Illinois and one in Indiana. The Illinois lenders are:

ILLINI CASH ADVANCE GREAT AMERICAN CASH ADVANCE CASH FOR PAYDAY INC.

The Indiana lender is:

ACE CASH EXPRESS, INC.

Illini Cash Advance makes what are nominally two-week loans at 520% interest. Great American charges 521%. Cash for Payday charges 677%. Ace Cash Express

All of the complaints allege violation of the Truth in Lending Act, as well as the making of unconscionable loans and violation of the Illinois Consumer Fraud Act through the making of unconscionable loans without proper disclosures. The cases are Donnelly v. Illini Cash Advance, 00 C 94, Burgin v. Great American Cash Advance, 00 C 96, and Davis v. Cash for Payday Inc., 00 C 34, filed in the federal district court in Chicago, and Rowings v. Ace Cash Express, Inc., IP 99-1887 C-B/S, filed in the federal district court in Indianapolis.

Edelman, Combs & Latturner concentrates in representation of consumers against lenders, car dealers, debt collectors, and other businesses.

EDELMAN, COMBS & LATTURNER FILES SUIT AGAINST SOUTHSIDE CEMETERIES

The Chicago law firm of Edelman, Combs & Latturner has filed a class-action suit against three cemeteries under common ownership — Mount Glenwood Memory Gardens, Mount Glenwood Memory Gardens West, and Evergreen Hills Memory Gardens — for business practices that discriminate against minorities. The case is Covington-Macintosh, et al. v. Mount Glenwood Memory Gardens, Inc., et al., 00 C 186. The suit was filed in the U.S. District Court for the Northern District of Illinois.

The defendants own and operate three cemeteries — Mount Glenwood South, Mount Glenwood West and Evergreen Hills. The two Mount Glenwood cemeteries historically serviced African-Americans. Evergreen Hills has historically serviced Caucasians. The suit alleges that defendants maintained Evergreen Hills in decent condition, while allowing the Mount Glenwood cemeteries to fall into disrepair. The complaint alleges that defendants violated the federal Civil Rights Acts by contracting with minorities on a less favorable basis than Caucasians.

The conditions at the Mount Glenwood cemeteries have already received widespread public attention from local news media. In August 1999, hearings on the matter were conducted by the Office of State Comptroller, Dan Hynes.

The suit also alleges that defendants enforced unreasonable rules and regulations at the Mount Glenwood cemeteries which hinder minority families from decorating gravesites and installing upright headstones.

EDELMAN, COMBS & LATTURNER SUES E-Z PAY DAY LOANS

The Chicago law firm of Edelman, Combs & Latturner, and Indianapolis attorney Clifford W. Shepard have filed a class action lawsuit against another Indiana high-interest “payday lender,” DSI, INC., doing business as E-Z PAYDAY LOANS.

The complaint alleges violation of the Truth in Lending Act and the Indiana Uniform Consumer Credit Code in connection with a series of 469% “payday loans.” The case is Rowings v. DSI, Inc., d/b/a E-Z Payday Loans, IP 00-0060-C-B/S. It was filed in the federal district court in Indianapolis.

A similar complaint was recently filed against Ace Cash Express, Inc., in the same court, Rowings v. Ace Cash Express, Inc., IP 99-1887-C-B/S.

Edelman, Combs & Latturner concentrates in the representation of consumers against lenders, car dealers, debt collectors, and other businesses. The firm has sued numerous “payday lenders” in Illinois, Indiana and elsewhere.

EDELMAN, COMBS & LATTURNER SUES ADVANCE AMERICA

The Chicago law firm of Edelman, Combs & Latturner has filed a class action lawsuit against another Indiana high-interest “payday lender,” ADVANCE AMERICA CASH ADVANCE CENTERS OF INDIANA, INC.

The complaint alleges violation of the Truth in Lending Act and the Indiana Uniform Consumer Credit Code in connection with a series of 280% to 500% “payday loans.” The case is Wallace v. Advance America, 2:00CV123JM (N.D.Ind.). It was filed in the federal district court in Hammond.

The Indiana Uniform Consumer Credit Code (i) prohibits lenders from charging interest of more than 36% per annum interest, (ii) allows a flat fee not exceeding $33, and (iii) prohibits lenders from using multiple agreements to obtain more finance charges than would otherwise be permitted. Plaintiff alleges that by imposing a finance charge that purports to be justified by the $33 exception to the general 36% limitation on a series of two-week loans — producing finance charges in the hundreds of dollars and an effective annual percentage rate of over 280% — Advance America violated the Uniform Consumer Credit Code.

A survey conducted by the Indiana Department of Financial Institutions disclosed that the average payday loan borrower “rolls over” her loan about 10 times, so that the loan actually remains outstanding for 5-6 months (5,350 borrowers obtained 54,508 loans and rollovers, with the average loan/ rollover lasting 13.67 days). The average annual percentage rate was 498.73%, or more than 10 times the 36% maximum. The average finance charge was $27.29 for each loan or rollover, showing that the lenders tried to use the $33 exception on each loan/ rollover. One borrower “rolled over” her loan 66 times, or for about three years. A survey conducted by the Illinois Department of Financial Institutions produced similar results. “Payday lenders” are thus well aware of the fact that borrowers generally will not pay their loans off in two weeks.

Similar lawsuits are pending against Ace Cash Express, E-Z Payday Loans, and Fast Cash USA in federal district court in Indianapolis. Rowings v. Ace Cash Express, Inc., IP 99-1887-C-B/S; Livingston v. Fast Cash USA, Inc., IP99-1226 C-B/S; Rowings v. DSA, Inc., d/b/a E-Z Payday Loans, IP 00-0060-C-B/S.

Edelman, Combs & Latturner concentrates in the representation of consumers against lenders, car dealers, debt collectors, and other businesses. The firm has sued numerous “payday lenders” in Illinois, Indiana and elsewhere.

Copyright 2000 The Indianapolis Star THE INDIANAPOLIS STAR

January 20, 2000, Thursday ,CITY FINAL EDITION

SECTION: BUSINESS; Pg. C01

LENGTH: 738 words

HEADLINE: Legal opinion raps payday lenders In formal opinion, state attorney general says loans may flout rate limits, violate laws.

BYLINE: THOMAS P. WYMAN; STAFF WRITER

BODY: The burgeoning payday loan industry was thrown on the defensive Wednesday when Indiana Attorney General Jeffrey Modisett said its costly short-term loans may flout state interest-rate limits and even violate criminal loansharking laws.

“Obviously it’s a setback,” said Randy Speicher, who directs an industry trade association and disputed Modisett’s opinion.

Payday loans — usually made for a few hundred dollars and over a few days — can’t exceed the 36 percent annual percentage rate imposed by state law, Modisett wrote in a formal opinion to the Indiana Department of Financial Institutions.

Loans that exceed a 72 percent rate not only break loansharking laws but are void, Modisett said. Lenders cannot legally collect on a voided loan, regulators say.

The attorney general noted, though, “that there is no controlling Indiana authority on these issues. Thus, how an Indiana court might resolve them is in doubt.”

The attorney general’s opinion, unlike an appeals court ruling or action by the General Assembly, does not have the force of law.

A survey by Indiana Department of Financial Institutions, which regulates the industry, suggests that many of the high-cost loans would fall outside the limits set by both civil and criminal laws, if the attorney general’s opinion is applied.

The agency’s review last year of more than 54,000 loans showed the average annual interest rate reached nearly 500 percent.

Daniel Edelman, a Chicago attorney whose firm has filed several lawsuits against payday lenders in Indiana, says judges deciding their cases could give considerable weight to the opinion of the state’s top legal officer.

Charles Phillips, who directs the Department of Financial Institutions and asked for Modisett’s opinion, said his office might now turn over its findings to local prosecutors.

It was Phillips who asked Modisett to clarify whether payday lenders were exempt from Indiana loan interest ceilings. Modisett said that while lawmakers have given pawnbrokers an exemption, payday lenders have not.

Steven Johnson, executive director of the state Prosecuting Attorneys Council, said, “A prosecutor may look at the opinion, decide the attorney general is right, and decide to file a case.”

In his 20 years with the council, which advises county prosecutors, no prosecutor has ever asked about loansharking laws, he said.

In Marion County Prosecutor Scott Newman’s office, staff members were studying the opinion, said spokesman Roger Rayl. A decision about pursuing prosecution would depend on the facts of individual cases, he said.

Payday lenders take post-dated checks from customers and hand them cash, charging a fee of up to $33. When the loan comes due, often only a few days later, the borrower pays back the cash, plus the fee.

If the customer, who usually has a depleted bank account and no savings, can’t afford to make the loan good, the lender can roll it over for a few more days — and another finance fee.

It’s the continual rollover of the same loan, with new fees added each time, that drive the interest rates so high, critics of the industry say.

“It really is astonishing — they would have paid back (amounts equaling) the principal four or five times, and still owe the principal,” said Phillips, the state top banking regulator.

Modisett’s opinion against the payday loan industry is another indication that the legal and regulatory environment nationwide is becoming more hostile to the lenders, said Jean Ann Fox of the Consumer Federation of America.

“This last year or so, as more is known about the results of allowing loans at triple-digit interest rates, this has become more controversial,” she said.

In Texas, Pennsylvania, Virginia, Florida and Georgia, state officials have moved to restrict payday lending activities, said Fox, who heads the CFA’s consumer protection office.

James Zaniello of the Community Financial Services Association, a Washington lobbying group for the payday industry, said the industry has operated successfully under Indiana laws for five years.

Loan volume in Indiana nearly doubled between 1997 and 1998. The industry made nearly $300 million in loans here in 1998, the last year for which figures are available.

Zaniello said the industry can show lawmakers and others that “the majority of this industry is made up of companies who would like to serve consumers in a responsible fashion.”

LOAD-DATE: January 20, 2000

MORE PAYDAY LENDERS SUED

The Chicago law firm of Edelman, Combs & Latturner and Indianapolis attorney Clifford Shepard have filed class action lawsuits against three more Indiana high-interest “payday lenders”: (i) Check Into Cash, (ii) All Checks Cashed, and (iii) GRT, Inc., which does business as A-1 Payday Loans and Castleton Cash Advance.

The complaints allege violation of the Truth in Lending Act and Indiana law in connection with “payday loans.” All were filed in the federal district court in Indianapolis. Wilson v. Check Into Cash of Indiana, LLC, IP00-0166C-H/G (S.D.Ind.); Smith v. All Checks Cashed, Inc., IP00-0165C-T/G (S.D.Ind.); Hudson v. GRT, Inc., IP00-0163C-M/S (S.D.Ind.).

The Indiana Uniform Consumer Credit Code (i) prohibits lenders from charging interest of more than 36% per annum interest, (ii) allows a flat fee not exceeding $33, and (iii) prohibits lenders from using multiple agreements to obtain more finance charges than would otherwise be permitted. Plaintiffs allege that by imposing a finance charge that purports to be justified by the $33 exception to the general 36% limitation on a series of two-week loans — producing finance charges in the hundreds of dollars and an effective annual percentage rate in triple digits — the lenders violated the rate restrictions in the Indiana Uniform Consumer Credit Code.

A survey conducted by the Indiana Department of Financial Institutions disclosed that the average payday loan borrower “rolls over” her loan about 10 times, so that the loan actually remains outstanding for 5-6 months (5,350 borrowers obtained 54,508 loans and rollovers, with the average loan/ rollover lasting 13.67 days). The average annual percentage rate was 498.73%, or more than 10 times the 36% maximum. The average finance charge was $27.29 for each loan or rollover, showing that the lenders tried to use the $33 exception on each loan/ rollover. One borrower “rolled over” her loan 66 times, or for about three years. A survey conducted by the Illinois Department of Financial Institutions produced similar results. “Payday lenders” are thus well aware of the fact that borrowers generally cannot pay their loans off in two weeks.

The complaints also allege violation of another Indiana statute that makes it unlawful to charge more than 72% interest in any case. Ind. Code, 35-45-7-2. This statute was the subject of the Attorney General’s recent opinion.

Finally, each lawsuit alleges failure to comply with the disclosure requirements of the federal Truth in Lending Act and the Indiana Uniform Consumer Credit Code.

Similar lawsuits are pending against Ace Cash Express, E-Z Payday Loans, Advance America, and Fast Cash USA in the federal courts in Indianapolis and Hammond. Rowings v. Ace Cash Express, Inc., IP 99-1887-C-B/S (S.D.Ind.); Livingston v. Fast Cash USA, Inc., IP99-1226 C-B/S (S.D.Ind.); Rowings v. DSA, Inc., d/b/a E-Z Payday Loans, IP 00-0060-C-B/S (S.D.Ind.); Wallace v. Advance America, 2:00CV123JM (N.D.Ind.).

Edelman, Combs & Latturner concentrates in the representation of consumers against lenders, car dealers, debt collectors, and other businesses. The firm has sued numerous “payday lenders” in Illinois, Indiana and elsewhere.