In a consumer rights victory of national significance, the New Jersey Supreme Court agreed with Trial Lawyers for Public Justice and a team of consumer rights advocates today that corporations cannot insert and enforce class action bans in their consumer agreements to get a free pass from consumer protection lawsuits. In Muhammad v. County Bank of Rehoboth Beach, Delaware, the Court ruled that a payday lender’s provision that barred borrowers from bringing class action claims violates the public interest protected by New Jersey’s Consumer Fraud Act and is "unconscionable and unenforceable."

"This is an enormous victory for low-income consumers who were charged interest rates of 600 percent and higher," said plaintiff’s counsel Michael J. Quirk of Williams, Cuker & Berezofsky in Philadelphia (and formerly of TLPJ), who argued the case before the New Jersey Supreme Court on February 14, 2006. "By allowing these borrowers to bring their claims for class-wide relief, the Court ensured that payday lenders and others who violate consumers’ rights can be held accountable under New Jersey’s consumer protection laws." Lead counsel in the case are Mark Cuker, also of Williams, Cuker & Berezofsky, and Donna Siegel Moffa of Trujillo, Rodriguez & Richards in Haddonfield, New Jersey.

Writing for the 5-1 majority in Muhammad, Justice Jaynee LaVecchia affirmed the value of class actions to consumers: "The public interest at stake in [the plaintiff’s] ability and the ability of her fellow consumers effectively to pursue their statutory rights under this State’s consumer protection laws overrides the defendants’ right to seek enforcement of the class arbitration bar in their agreement."

"New Jersey has joined the growing list of states which have held that corporations may not wipe out their customers’ ability to bring class actions as their best and sometimes only means of enforcing consumer protection laws," said F. Paul Bland, Jr., TLPJ Staff Attorney. "This is why corporations use class action bans – because they effectively get a ‘free pass’ out of consumer protection lawsuits. It is clear that these corporations were not interested in arbitrating consumer protection claims with their customers; rather, they were trying to make it impossible for their customers to bring consumer protection claims in any forum."

In Muhammad, which the New Jersey Supreme Court has remanded for further proceedings in arbitration, payday loan borrowers are challenging a "rent-a-bank" scheme. Under these schemes, lenders try to evade state usury laws by arranging for their operations to be "fronted" by out-of-state banks permitted by federal law to export their higher home-state interest rates to other states. In this case, payday lender Easy Cash was being fronted by County Bank of Rehoboth Beach, Delaware.

Lead plaintiff Jaliyah Muhammad 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 a class action lawsuit on behalf of all 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.

The defendants moved to enforce a mandatory arbitration clause which prohibits any class action against them. 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. TLPJ's work in this case was part of its Class Action Preservation Project.

TLPJ’s key briefs and the New Jersey Supreme Court’s decision in Muhammad v. County Bank of Rehoboth Beach are posted on www.tlpj.org.