James v. National Financial, LLC

132 A.3d 799 (2016)

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Nature of the Case

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Facts

National (D) is a consumer finance company. D loaned $200 to James (P). The terms of the Loan called for P to make twenty-six, bi-weekly, interest-only payments of $60, followed by a twenty-seventh payment comprising both interest of $60 and the original principal of $200. The total repayments added up to $1,820, representing a cost of credit of $1,620. The annual percentage rate (APR) for the Loan was 838.45%. P worked in the housekeeping department at the Hotel DuPont. P earned $11.83 per hour. As a part-time employee, her hours varied. On average, after taxes, P took home approximately $1,100 per month. P was laid off on December 31, 2014, when the hotel reduced its part-time staff. In May 2013, when she took out the Loan, P had been using high-interest, unsecured loans for four to five years. She obtained loans from several finance companies. She used the loans for essential needs, such as groceries or rent. On at least one occasion, she used a loan from one provider to pay off an outstanding loan from another provider. P had obtained five prior loans from D. P believed that she repaid those loans in one or two payments. The payment history for the loans shows otherwise. On May 7, 2013, P needed money for food and rent. P was a customer in good standing, meaning that she did not have to fill out a new loan application. She provided Reilly with her Nexis card, two recent paystubs, and her driver's license. In response to the Payday Loan Law, D had recast its payday loans as non-amortizing installment loans that were structured to remain outstanding for seven to twelve months. The Payday Loan Law only applied to loans designed to be outstanding for sixty days or less, so by making this change, D sidestepped the law. D continued to frame its finance charges using a block rate. Although D's customers eventually saw an APR on the loan agreement, D's employees followed a practice of telling customers that the APR had 'nothing to do with the loan.' P focused on the block rate and the concept of $30 in interest per $100 borrowed, just as D intended. She thought she would have to pay back $260. She told D that she would repay the loan in two payments of $130 each. She planned to pay $130 on her next payday of May 17, 2013, and another $130 on May 31. D printed out a copy of its standard form loan document and showed P where to sign. The loan document was titled 'Delaware Consumer Installment Loan Agreement.' The repayment schedule did not reflect either the two repayments that James wanted to make or the two repayments that D entered in the Payday Loan Manager. The Loan Agreement instead contemplated twenty-six interest-only payments of $60 each, followed by a balloon payment comprising a twenty-seventh interest payment of $60 plus repayment of the original $200 in principal. The total amount of interest was $1,620. According to the Loan Agreement, the APR for the loan was 838.45%. Using D's planned repayment schedule, the APR was 1,095%. P signed and got a check. The whole process took about twenty minutes. The day after P broke her hand while cleaning a toilet at the Hotel DuPont. She missed an entire week of work. P was allowed to work two or three days per week on light duty. P went to D but was told she had to pay. D refused to lower P's payments or give her any kind of accommodation. On May 31, 2013, D attempted on four separate occasions to debit P's Nexis account for $60. Each time, the debit was declined. D repeated debiting attempts. P eventually contacted counsel and filed suit against D. As of July 8, 2013, P had repaid D $197. She has not made any payments on the Disputed Loan since then. P refiled on behalf of herself and other similarly situated borrowers. P sought an injunction, a declaration that the loan was unconscionable, a breach of the implied covenant of good faith and fair dealing, unjust enrichment and violation of the Delaware Consumer Fraud Act. D moved to compel arbitration. Because D knew that their motion to compel arbitration had no factual basis, P moved for Rule 11 sanctions. They were granted. The case proceeded to trial solely on P’s individual claims.