Missouri court rules against Kansas payday lender

KANSAS CITY — A Missouri appeals court has ruled that a Kansas-based payday lender can't prevent customers from filing class-action lawsuits over its lending practices.

The Missouri Court of Appeals for the Eastern District in St. Louis last week upheld a lower court's ruling, saying part of QC Financial Services Inc.'s arbitration clause that bars customers from participating in class actions was "unconscionable."

Overland Park, Kan.-based QC Financial is a subsidiary of publicly traded QC Holdings Inc. and does business in Missouri as Quik Cash.

Matt Wiltanger, the company's attorney, said QC was "obviously disappointed with the result" and would likely appeal to the state Supreme Court.

QC Holdings has 596 branches in 24 states and originated $1.35 billion in loans in 2007, posting revenues of $213.6 million. Since 2002, the company has made loans to about 400,000 people in Missouri, though none of those resulted in lawsuits because of the arbitration clause.

But that was before DeQuae Woods, of Florissant, filed suit in mid-2007, seeking class-action status on behalf of similarly situated borrowers. The single mother of two claimed QC violated the state's payday lending laws after she eventually paid $1,800 in interest on an initial loan of $450.

Quik Cash sought to have the case thrown out, noting that the loan contract mandates arbitration. It also waives Woods' right to participate in class-action lawsuits or class arbitration against Quik Cash.

A St. Louis County Circuit Judge Richard C. Bresnahan ruled in December 2007 that the ban on class actions created a chilling effect on legal disputes over loan contracts.

"If a clause immunizes a defendant and paralyzes consumers, it is unconscionable," Bresnahan wrote. "Here there is overwhelming evidence this has occurred."

QC appealed his decision, but the appeals court upheld it, saying the company's policy essentially left consumers "with no meaningful avenue of redress through the courts."

Class-action lawsuits often are the only way to encourage attorneys to take on a case where the individual claims may be too small or costly to pursue.

"The court has given the people the right to join together in a class arbitration and let us take a close look at the practices of Quik Cash and see if they comply with Missouri's payday lending law," said John Campbell, Woods' St. Louis-based attorney. "Of course, we've alleged they don't. But up until now, we couldn't pursue such a case."

Missouri payday lending law caps interest at 75 percent of the initial loan amount.

"Our allegation is that, through a series of different maneuvers, QC attempts to keep people in loans longer than the law allows, and, as a result, people pay many times the amount they borrowed," Campbell said.

Class waivers have had mixed success across the U.S., with some courts upholding them as legal. The 8th U.S. Circuit Court of Appeals, also based in St. Louis, earlier this year said a class-waiver provision similar to QC's in an American Express credit card contract was not unconscionable under state law.

Barring an appeal from QC, Woods' case now goes to an arbitration panel to determine if it should be certified as a class action.