MEMORANDUM REGARDING ENFORCEABILITY OF CLASS-ACTION WAIVERS
In these related matters, Plaintiffs entered into various "payday loan" agreements with Defendants. The two separate actions correspond to two separate programs Defendants offered at different times. Plaintiffs filed suit to recover, inter alia, damages, including allegedly illegal usurious interest charged by Defendants and paid by Plaintiffs. Presently before the Court are the King Defendant's Motion to Compel Arbitration (King, ECF No. 6), the Johnson Defendants' Motion for Stay of Judicial Proceedings Pending Arbitration or, in the Alternative, to Dismiss the Complaint for Failure to State a Claim Upon Which Relief May Be Granted (Johnson, ECF No. 21), and the Johnson Plaintiffs' Motion to Compel Discovery (Johnson, ECF No. 76). On August 18, 2011, the Court entered an Order granting the King Defendant's Motion, granting in part and denying in part the Johnson Defendants' Motion, and denying the Johnson Plaintiffs' Motion. (King, ECF No. 76; Johnson, ECF No. 86.) This Memorandum will state the reasons.
II. Factual and Procedural Background
A. Relevant Factual Background
On January 18, 2007, Raymond King and Sandra Coates, on behalf of themselves and others similarly situated (the "King Plaintiffs"), filed a class action complaint against Advance America, Cash Advance Centers of Pennsylvania, LLC (the "King Defendant"). The King Plaintiffs allege that the King Defendant "unlawfully charged Pennsylvania consumers in excess of 700% annual percentage rate (APR) on short-term loans, commonly referred to as 'payday loans.'"*fn1 (King Compl., ECF No. 1, ¶ 1.) Defendants achieve these high-interest rates by charging a fee, of approximately $8.50 to $9.50, per $50 borrowed. (Id. ¶ 16.)
Sharlene Johnson, Helena Love, and Bonny Bleacher, on behalf of themselves and others similarly situated (the "Johnson Plaintiffs," together with the King Plaintiffs, "Plaintiffs"), also filed a class action complaint against Advance America, Cash Advance Centers, Inc., Advance America, Cash Advance Centers of Pennsylvania, LLC, and NCAS of Delaware, LLC (the "Johnson Defendants," together with the King Defendant, "Defendants"). The Johnson Plaintiffs allege that the Johnson Defendants offer a "predatory payday-lending program that charges Pennsylvania customers a 'monthly participation fee' of $149.95 on loans of $500 or less, in addition to a monthly interest charge" of $17 to $20 per $100 borrowed (Johnson Compl., ECF No. 1, ¶¶ 1, 19.)
Plaintiffs allege that Defendants' programs are regulated by Pennsylvania's Consumer Discount Company Act ("CDCA"), 7 Pa. Stat. §§ 6201 et seq., which allows licensed companies to offer consumers small loans at rates capped at twenty-four percent (24%). (King Compl. ¶ 17; Johnson Compl. ¶ 25.) Without a CDCA license, Plaintiffs assert that Pennsylvania's general usury law caps the permissible interest rate at six percent (6%). (King Compl. ¶ 8; Johnson Compl. ¶ 24) (citing 41 Pa. Stat. § 201). Plaintiffs allege that Defendants' programs charged effective interest rates of 400% to 700% or higher. (King Compl. ¶ 16; Johnson Compl. ¶ 19.)
The King Plaintiffs' allegations focus on the King Defendant's earlier business model, dubbed "rent-a-bank" schemes. Under these "schemes," the King Defendant would facilitate a loan agreement between a customer and a bank located in another state for the purpose of invoking federal interest rate preemption. (King Compl. ¶¶ 27-28, 32.) Each loan the King Plaintiffs entered contained an arbitration clause that waived, among other things, their right to file a class action, represent a class of litigants, and participate in a class as a member. (Id. ¶ 48.) The relevant portion of the arbitration provision in the King agreements provides:
"You acknowledge and agree that by entering into this Arbitration Provision: . . . YOU ARE WAIVING YOUR RIGHT TO SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY, AND/OR TO PARTICIPATE AS A MEMBER OF A CLASS OF CLAIMANTS, IN ANY LAWSUIT FILED AGAINST US . . . ."
[A]ll disputes including any Representative Claims against us . . . shall be resolved by binding arbitration only on an individual basis with you. THEREFORE, THE ARBITRATOR SHALL NOT CONDUCT CLASS ARBITRATION; THAT IS, THE ARBITRATOR SHALL NOT ALLOW YOU TO SERVE AS A REPRESENTATIVE, AS A PRIVATE ATTORNEY GENERAL, OR IN ANY OTHER REPRESENTATIVE CAPACITY FOR OTHERS IN THE ARBITRATION." (Id. Exs. A, B.)
The Johnson Plaintiffs' allegations focus on the Johnson Defendants' more recent business model,*fn2 the "Advance America Choice-Line of Credit." (Johnson Compl. ¶ 43.)Under this program, the Johnson Defendants offer consumers a line of credit and charge a 5.98% APR in addition to a $149.95 monthly participation fee. (Id. ¶ 45.) These line-of-credit agreements also included arbitration clauses which, like those in the King matter, include class-action waivers. (Id. ¶¶ 52, 91.) The relevant portion of the clause for the Johnson Plaintiffs appears in the Arbitration Provision of the Revolving Credit Agreement:
"5. NO CLASS ACTIONS OR SIMILAR PROCEEDINGS; SPECIAL FEATURES OF
ARBITRATION. If you or we elect to arbitrate a Claim,*fn3
neither you nor we will have the right to: (1) have a court
or jury decide the Claim; (b) obtain information prior to the hearing
to the same extent that you or we could in court; (c) participate in a
class action in court or in arbitration, either as a class
representative or class member; (d) act as a private attorney general
in court or in arbitration; or (e) join or consolidate your Claim(s)
with claims of any other person."
(Johnson Mot. for Partial Summ. J., ECF No. 20, Ex. 10(c) at 3, § 5.)
Defendants moved to compel individual arbitration based on the arbitration provisions in each case.
B. Pennsylvania Enforcement Action Against Defendants
According to Plaintiffs, Defendants approached the Pennsylvania Department of Banking for approval of their line-of-credit program. (Mot. to Compel Memo., ECF No. 76-2, at 6.) Plaintiffs allege that officials advised Defendants that its programs are illegal under Pennsylvania law. ...