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Copyright 2000 LRP Publications Consumer Financial Services Law Report
October 30, 2000
SECTION: Vol. 4, No. 10
In an action against payday lenders, the U.S. District Court for the Southern District of Texas certified a class of borrowers so desperate for cash that they
borrowed money at extremely usurious rates. (Henry, et al. v. Cash Today Inc., et al., Nos. H-99-3335, C-99-305 (S.D. Tex. 9/19/00).)
Wesley Henry and George Rodriguez sued Cash Today Inc. and other payday lenders, alleging their "payday loans" violated the Truth in Lending Act, the
Racketeer Influenced and Corrupt Organizations Act, state usury laws, the Texas Debt Collection Act and the Texas Deceptive Trade Practices Consumer
Protection Act. The borrowers claimed, "Defendants are unlicensed lenders engaging in a practice ... of making high interest (at more than twice the rate
permitted by Texas law) payday loans throughout Texas, while pretending to sell advertising and operating a check cashing business in order to avoid liability for
usury and violations of TILA." Specifically, the borrowers alleged the lenders violated the TILA by failing to disclose the amount financed, the finance charge, the
annual percentage rate and the total number of payments. They also contended the lenders engaged in prohibited debt collection practices by making threats of
criminal prosecution and misrepresenting that the transactions were not loans.
The borrowers moved for certification of a class of all Texas residents who entered into transactions with lenders "purporting to be cash-back advertising sales."
Rule 23(a)
The lenders argued that the borrowers failed to satisfy the commonality, typicality and adequacy of class representation requirements.
However the District Court held that the borrowers satisfied the numerosity requirement by alleging the lenders maintained 30,000 to 40,000 loan customer
files throughout Texas. It also found the borrowers satisfied the commonality requirement because common questions "linked" all class members on all causes of
action. As to the TILA claim, the court stated, the "shared questions are whether Defendants were engaged in making consumer loans and whether their failure to
provide required disclosures violated the statute." It added, "Because a borrower need not show reliance or injury for a TILA cause of action, but simply make an
objective comparison of Defendants' disclosure practices with the requirements of TILA ... there is no danger of individual differences undermining class similarities."
The court also found that the borrowers' usury cause of action created a common issue: whether the transactions were loans and whether they exceeded the statutory
interest rate. Finally, the court said "[t]he nature of the misleading representations ... in violation [of] the DTPA would be the same for all class members. PAGE 6
Consumer Financial Services Law Report October 30, 2000
The borrowers satisfied the typicality requirement because each member entered into the same type of payday loan. The court also determined that the proposed
representation was adequate because the representative and members sought money damages, and their counsel was experienced.
Rule 23(b)(3)
As the court noted, to maintain a class action under Rule 23(b)(3), the borrowers must show that (1) common questions predominate over any questions affecting
only individual members and (2) the class resolution is superior to other available methods for the "fair and efficient adjudication of the controversy." The court
observed that the lenders "operated in essentially the same manner, as centrally directed by Defendant Cash Today USA, with regard to all customers" and
determined that the borrowers satisfied the predominance requirement of Rule 23(b)(3).
With regard to the TILA claim, the court stated the lenders engaged in the same practices of alleged nondisclosure. The court also stated, "the 'common nucleus of
operative fact' for purposes of the Count Two usury claim is that Defendants lent Plaintiffs' money at a rate exceeding 600% per annum." The court further found a
class action to be a superior method for resolving the dispute. As the court stated, "Plaintiffs emphasize that most of the affected borrowers are probably unaware of
the violation of their rights and the claims individually are for relatively small amounts of money, making the likelihood of individual litigation unlikely."
Judge Melinda Harmon opined, "the nature of the case indicates that the potential class is composed of individuals so financially strapped that they would borrow
money at extremely usurious rates." The court ruled the borrowers met their burden of proof for class certification.
James McMillen of Corpus Christi, Texas, Richard Tomlison in Houston, and Daniel Edelman and James Latturner of Edelman, Combs & Latturner in Chicago,
represented the class. Stephen Darling of Chaves, Gonzales & Hoblit in Corpus Christi, Texas, and Phillip McKinney and Jason Libby of Hornblower, Manning &
Ward of Corpus Christi, Texas, represented the defendants.
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