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Missouri Supreme Court backs payday loan arbitration agreements

Tuesday, March 6, 2012 | 8:49 p.m. CST

JEFFERSON CITY — The Missouri Supreme Court ruled Tuesday that payday lenders can require that customer disputes be settled by arbitration instead of through class-action lawsuits.

Some payday and title lenders include wording in their contracts outlining how they will resolve disputes with customers in arbitration, and some such agreements include wording preventing costumers from filing class-action lawsuits.

In two decisions Tuesday, the high court said it's fair for a payday loan contract to require arbitration to settle disputes. Businesses often prefer arbitration — rather than then relying on a judge or jury — to settle disputes because it can be less costly and time-consuming than litigation.

The decisions come after the U.S. Supreme Court ruled last year that federal laws allowing companies to require arbitration trump contrary state laws. That case did not involve payday lenders, but rather a California couple who had sued AT&T Mobility after they were charged sales tax for cellphones they had been told were free.

In one of the Missouri cases, the court decided 4-3 that the class-action waiver was allowable, but agreed with a lower court that other terms of the arbitration agreement were unfair. The court voted to send the case — involving a woman who sued a title lender — back to a lower court to determine how the arbitration agreement as a whole should be enforced under state contracting law.

Writing the Missouri court's majority opinion, Chief Justice Richard Teitelman called the arbitration agreement as a whole "extremely one-sided" because, among other things, it required customers to pay their own legal expenses for the proceedings. The agreement also allowed the title company to go to court to repossess the plaintiff's car, which was collateral for the loan.

"In the context of a title loan transaction, this is a particularly onerous provision because among the lender's chief remedies in the event of default is either judicial or self-help repossession," Teitelman wrote. "The title company reserves its right to obtain its primary remedies through the court system," while the plaintiff could only go to arbitration.

That case had previously been appealed to the U.S. Supreme Court, which last year sent the case back to Missouri's justices to be reconsidered in light of the decision involving AT&T.

In a second case, the Supreme Court voted 7-0 to reverse a lower court decision that had ruled against an arbitration clause because it required customers to waive their right to file a class-action lawsuit. The high court also sent that case back, saying that a trial court should have decided whether the agreement was enforceable under state contracting law.


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