Borrowers Carpenter and Cason obtained loans from FinWise Bank with an interest rate of 159.56% and entered into agreements that included an arbitration clause. The clause required any disputes to be resolved through arbitration rather than in court.
Carpenter and Cason initiated a class action lawsuit against OppFi, the service provider for the loans, claiming the interest rates violated California and federal law.
OppFi requested that the case be moved to arbitration in accordance with the agreement. Although the district court originally ruled in favor of the borrowers, declaring the arbitration clause unconscionable under California law, OppFi appealed the decision.
The Ninth Circuit Court of Appeals reversed the district court's ruling. It determined that the district court exceeded its authority by preemptively deciding the applicable law, a decision it declared should be made by an arbitrator. The Ninth Circuit remanded the arbitration case and noted that there was only speculation concerning the potential application of Utah law over California law, and emphasized that an arbitrator would not enforce an illegal contract.
Our Opinion:
This decision underscores the power of arbitration clauses, ensuring that disputes are handled outside of court, consistent with the Federal Arbitration Act. U.S. alternative lenders can view this as a validation for using arbitration clauses in their contracts to mitigate legal risks and streamline dispute resolution. It's a clear message that these clauses hold up in federal appellate courts, setting a precedent beneficial to the alternative finance industry.
Headlines You Don’t Want to Miss
Connecticut Tightens Nonmortgage Loan Regulations
Connecticut revises consumer loan laws, expanding lender licensing requirements and establishing ability-to-pay criteria, which may lead to stricter oversight and higher operational costs for lenders.
Iowa Bank's High-Risk Lending Practices Lead to Failure
Iowa Bank collapses after excessive commercial real estate lending and poor risk management, with insufficient board oversight and ineffective regulatory intervention.
TrueFi Debuts DeFi Lending with Real-World Assets
TrueFi launches a DeFi lending service using tokenized assets like real estate as collateral, sparking a 14% TRU token price surge.
GOP Pushes Back on SBA Expansion Over Fraud Fears
Republicans contest SBA program expansions in the $3.5T budget plan, calling for stringent loan reviews to combat fraud.
.png)
.png)
.jpg){kind=small}
.png)