District court certifies “rent-a-tribe” class action
On July 20, the U.S. District Court for the Eastern District of Virginia approved a “rent-a-tribe” class action suit alleging that an individual who orchestrated an online payday loan program violated the Racketeer Influenced and Corrupted Organizations (RICO) Act, engaged in an enrichment without cause and violated Virginia’s Usury Act by teaming up with federally recognized tribes to issue loans at allegedly usurious interest rates. The plaintiffs alleged that the defendant had partnered with the tribes to circumvent state usury laws, even though the tribes did not control the loan transaction. The court ruled that, given that there was “no substantial involvement” of the tribes in the loan transaction and the evidence showed that the defendant was “functionally responsible”, the loan transaction – which would have charged interest rates exceeding Virginia’s 12% interest cap – could not claim tribal immunity. The complainants requested certification of two RICO categories, distinguished from each other on the basis of the lending entity, each with two sub-categories of borrowers: loans; and (ii) a sub-category of unjust enrichment of borrowers who have paid an amount on their loans. The defendant disputed the certification of the group, arguing that “due to its changing roles” in the loan transaction during the period of the action, “the differences between the members of the group will result in the need for a series of complicated mini-trials “. In certifying the two RICO classes, the court called the defendant’s recommendation to sue individual lenders “an unnecessary and untenable burden on the court system.” In addition, the court wrote that “[w]in regards to [p]applicants’ unjust enrichment requests, [the defendant] also tries to assert that some [p]the applicants did not confer a benefit on [the defendant] because they paid back less than what they received on their loans. However, the court noted that because Virginia law states that any contract in violation of state usury law is void, “any money paid on a void contract could constitute an advantage for the purposes of a enrichment without cause “.