Missouri Title borrowers will share in $5M settlement
Borrowers would get more than $5 million under a new settlement in a lawsuit that challenged the behavior of a major title loan company and went to the U.S. Supreme Court three times.
In the midst of the fight, the Missouri Supreme Court struck down as “unconscionable” a provision in loan agreements that prohibited class action lawsuits. Such provisions are common and controversial, and other courts have upheld them.
The settlement with Missouri Title Loans of Springfield also includes $575,000 for the attorneys who brought the suit, including Erich Vieth and John Campbell of St. Louis. The deal is awaiting final approval in St. Louis Circuit Court.
Title loan companies lend money secured by the title on the borrower’s car. The loans are generally made for short periods of time at high interest rates. If borrowers can’t pay by the deadline, they often renew the loan by paying another large interest charge.
According to the suit, filed in 2007, Beverly Brewer borrowed $2,215 at an interest rate of $537 per month from a Missouri Title office on St. Charles Rock Road. After two payments, totaling $1,147, she found that the original loan amount hadn’t fallen at all.
Another borrower, Althea Peete, was supporting herself and a teenager on $724 per month. At a south St. Louis office, Missouri Title lent her $608. After paying “mandatory fees,” she left the office with only $500, the suit alleged, but owed the $794 the following month.
Missouri law on title loans says that the principal amount must be reduced by 10 percent with each renewal. Lenders must also assess the borrower’s ability to repay and give certain notices, including the right to cancel the loan within a day of taking it out. The lawsuit charged that Missouri Title did none of that. Title lenders often structure the loans under a separate “small loan” law with lesser consumer protections.
The major court battle, however, centered on provisions in the loan agreement saying that disputes must be settled in arbitration, not in court, and forbidding “class action” arbitrations.
The Missouri Supreme Court threw out that provision, opening the courtroom doors. The court reasoned that no lawyer would take a case involving such a small loan and that without class actions, borrowers would have no way to seek redress.
In a class action, lawyers argue that a few plaintiffs can bring a suit representing thousands of people in the same situation. That multiplies both the risk for the company being sued and the potential payout for the plaintiffs’ attorneys.
Missouri Title appealed the decision to the U.S. Supreme Court. At first, the U.S. Supreme Court ordered the Missouri court to reconsider its decision in light of a high court decision that favored arbitration requirements.
The Missouri court reaffirmed its own decision, and the federal high court twice declined to intervene.
Vieth doubted whether the Missouri court’s ruling on class action arbitrations can automatically apply to other loan companies, because it centered on the language of the Missouri Title loans.
Martin Green, attorney for Missouri Title, said more than 5,000 borrowers would receive refunds totaling more than $5 million.
People who defaulted on loans at least three years old will find all finance charges forgiven. The company will forgive 25 percent of finance charges on defaulted loans less than three years old, and one-third of one month’s charge on loans that are current. Borrowers who have repaid their loans will get a free month’s interest on a new loan.