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Judge rebukes payday lender in case filed by Simon Passanante

January 29th, 2008 by John Campbell

When a judge ruled against payday lender Quik Cash in a suit filed by Simon Passanante over the enforceability of a class action–waiver provision, consumers were the ones who came out ahead.

In a 20-page opinion, St. Louis County Circuit Judge Richard S. Bresnahan wrote:  “If a clause immunizes a defendant and paralyzes consumers, it is unconscionable.”

The ruling was handed down on Dec. 31 in Woods v. QC Financial Services, Inc., dba Quik Cash. The case was filed in October 2006 by Simon Passanante attorneys John G. Simon, Erich Vieth and John E. Campbell on behalf of Dequae Woods, a Quick Cash customer.

John Campbell      Erich Vieth 

Simon Passanante alleged that the Overland Park–based payday-loan company engages in predatory lending practices, charging customers as much as 400 percent interest. The declaratory judgment action asked the court to void the arbitration clause and class action–waiver provision.

In rejecting Quick Cash’s motion to dismiss the case, Bresnahan laid out evidence supporting his conclusion that the clause was both procedurally and substantively unconscionable.

The judge noted that the arbitration clause itself was problematic. “Clauses are meant to communicate information, not conceal it,” Bresnahan wrote. “The QC arbitration [clause] fails the test.”

Printed in eight-point type, the 1,300-word clause was squeezed so tightly onto one page that an optical scanner could not make out the characters. During his deposition, the corporate representative reread a line on accident because of the small type size and tight spacing. A version of that same clause—double-spaced and in 12-point type—spanned six pages.

The judge also noted that in the past five years QC has been involved in approximately 2.8 million loan transactions with about 400,000 customers yet has never negotiated the arbitration clause. Quik Cash has also never been sued. The court was “skeptical” that the dearth of litigation was a result of the company’s good corporate citizenship.

Instead, Bresnahan wrote: “It is more likely that lack of notice, coupled with the difficulty in finding legal representation and the disincentive for individuals to pursue their claims alone, are the explanations for this absence of legal disputes between QC and its customers.”

As for QC’s argument that the clause promoted efficiency, the judge noted that the company president “could not articulate the differences between court proceedings and arbitration and he admitted he knew little about either.” QC’s president is also the president of the nationwide association of payday lenders known as the Consumer Financial Services Association. The organization, as Simon Passanante noted, hosts speakers who discuss “eliminating class actions through the use of arbitration clauses.”

And even though QC had never filed a class action suit, the company “admitted that it filed lawsuits against its own customers, in courts other than small claims court, in violation of its obligations under the clause it drafted.”

Simon Passanante also argued that because the class-waiver provision interfered with consumers’ ability to use the class mechanism granted by Missouri’s Merchandising Practice Act, the clause did more than take away a procedure; it stripped the consumer of a statutory right.

“By requiring its customers to sign a contract that takes away their rights to pursue claims via the class mechanism, QC has thwarted the intent of the MPA and Missouri consumer laws,” Bresnahan wrote.

Simon Passanante employed a number of experts who were critical to the success of the case. Consumer attorneys Dale Irwin, Bernard Brown, John Ammann and Stuart Rossman served as experts regarding the effects of prohibiting class actions, the likelihood consumers could find representation, the reasons businesses might include class waivers, and additional reasons why the clause crippled a consumer’s ability to learn of the violation and then procure representation. The testimony of each expert was admitted by Judge Bresnahan and each expert was referenced in the subsequent order. 

In addition, Simon Passanante retained Dr. Mark Hochhauser, an expert in the “readability” of clauses.  Dr. Hochhauser’s testimony was essential in proving that the clause was physically difficult read, and written in such a way that it was intellectually incomprehensible to even educated consumers.

Bresnahan struck down the clauses that prohibit class arbitrations. He sent the case to the American Arbitration Association for a panel of arbitrators to decide whether the class should be certified and damages awarded.

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