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Consumer Challenging Class Action Ban Before
New Jersey Supreme Court

Corporations Trying To Get ‘Free Pass’ for Exorbitant Interest Charges

In a consumer rights battle of national significance to be heard tomorrow before the New Jersey Supreme Court, the national public interest law firm Trial Lawyers for Public Justice is representing a New Jersey borrower who is fighting a tactic increasingly used by corporations trying to avoid accountability for cheating consumers. Attorneys for the plaintiff, Jaliyah Muhammad, argued on February 14, 2006, that a New Jersey payday lender should not be able to duck state laws against charging excessive interest by inserting into the fine print of its form contracts a mandatory arbitration clause that prohibits any class action against it. These lenders charged Ms. Muhammad interest rates of over 600%.

In Muhammad v. County Bank of Rehoboth Beach, New Jersey’s Supreme Court will decide whether a payday lender’s mandatory arbitration clause is unconscionable for barring consumers from bringing class actions and forcing them to prove complex claims with virtually no money and no meaningful ability to compel alleged wrongdoers to produce documents or testify under oath in depositions.

"These high-cost lenders cannot, with the stroke of a pen, wipe out consumers’ rights to hold them accountable," said TLPJ Staff Attorney Michael J. Quirk, who argued the appeal for Ms. Muhammad. "This case is part of a dangerous trend where companies are seeking to insulate themselves from the law by sticking class action bans in their form customer contracts. This effectively gives companies a free pass out of New Jersey's consumer protection laws."

In Muhammad, New Jersey payday loan borrowers are challenging a "rent-a-bank" scheme. Under these schemes, lenders try to evade state laws against usury -- that is, charging enormous and illegal interest -- by arranging for their operations to be "fronted" by out-of-state banks that are allowed by federal law to export their higher home-state interest rates to other states. In this case, the payday lender was being fronted by County Bank of Rehoboth Beach, Delaware.

The Plaintiff borrowed $200 in cash from Easy Cash, but after having to "roll over" the loan twice, she paid a total of $180 in interest on a two-month loan a 608% annual percentage rate (APR), despite New Jersey’s criminal usury limit of 30% APR. Muhammad filed suit on behalf of New Jersey borrowers, alleging that Easy Cash and two other companies were the true lenders and were violating New Jersey’s usury statute, Consumer Fraud Act, and civil racketeering statute. The suit names County Bank as a co-defendant.

"Charging interest rates over 600% is shocking to the conscience and plainly violates New Jersey law," said Plaintiff's co-lead counsel Donna Siegel Moffa of Trujillo, Rodriguez & Richards in Haddonfield, New Jersey. "But without the ability to participate in a class action, consumers won't have the necessary tools to fight these abusive practices."

The defendants moved to enforce a mandatory arbitration clause, which not only bars class actions, but forces Muhammad to limit her discovery to an amount commensurate with her individual claims leaving her with some $180 worth of discovery to prove complex fraud, racketeering, and conspiracy claims. The trial court enforced the arbitration clause and the appellate court affirmed.

TLPJ joined the case to fight the class action ban and arbitration clause in the New Jersey Supreme Court. In addition to Quirk and Siegel Moffa, the plaintiff is represented by co-lead counsel Mark Cuker of Williams, Cuker & Berezofsky in Cherry Hill.

TLPJ’s key briefs in Muhammad v. County Bank of Rehoboth Beach are posted on www.tlpj.org.

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