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Florida Court Approves Class Action Claims Against Payday Lender

A Florida appeals court refused to enforce a class action ban in a payday loan contract. The court held (as AARP’s brief had urged) that ruling otherwise “would prevent a consumer from vindicating the rights that consumer protection statutes are designed to create and nurture.”


Payday loans are one of the most common forms of predatory “fringe banking” transactions, marketed to low- and moderate-income consumers, those on fixed incomes or with blemished credit histories, and others who cannot get loans from mainstream lenders. A borrower writes a personal check that both parties know the borrower can not immediately cover. In exchange, the borrower receives cash (usually $100 to $500), minus a fee which must be repaid usually in full plus a fee within two weeks.  

At the end of the loan term the borrower can allow the lender to deposit the check, redeem the check by paying its full face value, or "roll over" the loan by paying another fee without receiving additional cash. Many borrowers roll over their payday loans multiple times, often paying fees far in excess of the original amount borrowed. In this case, one of the plaintiffs alleged that she paid a total of $860 in fees for a $300 loan. Her experience is typical, but some stories are even worse — effective annual percentage rates on payday loans can exceed 1,000%.

Borrowers have difficulty challenging these high cost loans because the contracts include forced arbitration clauses and class action bans that keep disputes out of court. Forcing borrowers to bring their cases in arbitration on an individual basis can and does preclude borrowers from obtaining legal representation.

AARP’s brief, prepared by attorneys with AARP Foundation Litigation, argued that forced arbitration with class action bans is designed to prevent consumers from enforcing the consumer protection laws, allowing corporations to reap substantial benefits without any consequences for violations of law. Class actions often are the only effective way to stop corporate wrongdoing and obtain relief for large numbers of victims.

What’s at Stake

This is the latest win in a series of cases in which AARP has participated both in the courts and the Florida legislature, where AARP has advocated to rein in fringe banking services. Payday lenders target low- and moderate-income people who are forced to turn to fringe banking when faced with unexpected crises, such as unanticipated health issues. Protecting these borrowers by making sure consumers can seek redress when they are harmed by corporate wrongdoing is particularly important to AARP.

Case Status

McKenzie Check Advance of Florida v. Betts
  was decided by Florida’s District Court of Appeal for the Fourth District.

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