Online Payday Lenders’ Tribal Arbitration Clauses Unenforceable

Arbitration clauses included in payday loans by two online lenders were invalid because their choice of Native American tribal law prospectively waived borrowers’ federal rights, the U.S. Court of Appeals for the Fourth Circuit said Tuesday.

A class of Virginia borrowers sued investors in Plain Green LLC and Great Plains Lending LLC, arguing their loans were unlawful under the state’s usury laws and that the lending scheme violated the Racketeer Influenced and Corrupt Organizations Act. Interest rates on the loans ranged from 219 to 373 percent.

Both lenders are owned by Native American tribes, and the loans’ arbitration agreements included ...