Kemply v. Cashcall, Inc.

• Decision Date: 16 March 2016
• Docket Number: Case No. 08-cv-03174-MEJ
• Parties: LORI KEMPLY, et al., Plaintiffs, v. CASHCALL, INC., Defendant.
• Court: U.S. District Court — Northern District of California

LORI KEMPLY, et al., Plaintiffs, v. CASHCALL, INC., Defendant.

Case No. 08-cv-03174-MEJ

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

March 16, 2016

FINDINGS OF FACT AND CONCLUSIONS OF LAW

INTRODUCTION

In this certified class action, the Court previously found that Defendant CashCall, Inc. ("CashCall") violated the Electronic Funds Transfer Act ("EFTA"), 15 U.S.C. § 1693k(1),¹ when it conditioned its extension of credit on borrowers' repayment by means of preauthorized electronic funds transfers ("EFTs"). Order re: Mots. for Summ. J. ("MSJ Order") at 16-17, Dkt. No. 220. In doing so, the Court also found that CashCall violated California's Unfair Competition Law ("UCL"), Business and Professions Code section 17200,² by engaging in an unlawful business practice. Id. at 17. This Order decides what relief class members are entitled to as a result of CashCall's violations. For the reasons set forth in this Order, the Court finds CashCall must pay a statutory penalty of $500,000 for its EFTA violation; however, Plaintiffs³ otherwisefailed to show they are entitled to actual damages under the EFTA. Additionally, as Plaintiffs failed to prove that Class Representative Lori Kemply has standing to pursue a representative action under the UCL, the Court may not award restitution to the class under the UCL.

PROCEDURAL HISTORY

Plaintiffs commenced this action in July 2008, alleging among other things, violations of the EFTA and the UCL based on CashCall's practice of conditioning the extension of credit on repayment by preauthorized EFTs. Compl. ¶¶ 38-48, Dkt. No. 1-2. Plaintiffs filed the operative Fourth Amendment Complaint in February 2010, continuing to allege that CashCall's conditioning practices violated the EFTA and UCL. Fourth Am. Compl. ¶¶ 41-53, 95-98, Dkt. No. 54.

On November 15, 2011, the Court granted Plaintiffs class certification as to the "Conditioning Class" (Class Cert. Order, Dkt. No. 100), which was later limited to "[a]ll individuals who, while residing in California, borrowed money from CashCall, Inc. for personal, family, or household use on or after March 13, 2006 through July 10, 2011 and were charged an NSF fee." Order Approving Class Notice Plan, Dkt. No. 130.⁴ The "Class Period" is thus between March 13, 2006 through July 10, 2011. Notice was sent out to class members on August 31, 2012 via email and again on October 3, 2012 for those class members who only had mailing addresses or whose email notices came back as undeliverable. Status Report re: Clarification of the Record at 3, Dkt. No. 308 (citing Declaration of Jeffrey Gyomber ¶¶ 9-10, Dkt. No. 308-1); see also March 3, 2013 Status Report at 1, Dkt. No. 136. The Court additionally ordered supplemental notice to be sent to an additional 13,541 Conditioning Class members who were improperly excluded from the original class list. Order re: Suppl. Notice, Dkt. No. 144. Supplemental notice was sent via email to those class members on August 9, 2013, and again on September 6, 2013 to those class members who only had mailing addresses or whose email notices came back as undeliverable. Gyomber Decl. ¶¶ 13-19; Exs. A-D (respectively, copies of the Email Notice, Postcard Notice, Long-Form Notice, and Exclusion Request Form). As indicated,the Court granted summary judgment in favor of Plaintiffs as to their EFTA and UCL claims on July 14, 2014. MSJ Order at 16-17, 36.

The Court held a bench trial on September 8-9, 2015 on the issue of whether Plaintiffs are entitled to statutory and/or actual damages under the EFTA and/or restitution under the UCL. See Sept. 8, 2015 Trial Transcript ("Sept. 8 Tr."), Dkt. No. 296; Sept. 9, 2015 Trial Transcript ("Sept. 9 Tr."), Dkt. No. 298; Undisputed Facts ("UF") No. 7, Dkt. No. 281 (submitted as part of the Joint Pretrial Statement). During trial, Plaintiffs called two adverse witnesses: (1) CashCall Chief Executive Officer Delbert Meeks and (2) CashCall Principal Architect Ethan Post. Sept. 8 Tr. 44:4-5; 112:23-24. CashCall also called two witnesses: (1) former CashCall employee Sean Bennett and (2) Dr. Bruce Carlin, a consumer finance expert. Sept. 9 Tr. 181:24-25; 182:9; 251:24-25. Following trial, the Court granted the parties leave to file post-trial briefs and proposed findings of fact and conclusions of law, which they did. Def.'s Post-Trial Br., Dkt. No. 301; Def.'s Proposed Findings of Facts & Conclusions of Law ("Def.'s F&C"), Dkt. No. 302; Pls.' Post-Trial Br., Dkt. No. 304; Pls.' Proposed Findings of Facts & Conclusions of Law ("Pls.' F&C"), Dkt. No. 303.

Having carefully considered the testimony at trial, the trial exhibits, the parties' written arguments, and the relevant legal authority, the Court renders the following Findings of Fact and Conclusions of Law pursuant to Federal Rule of Civil Procedure 52(a)(1).⁵

FINDINGS OF FACT

A. CashCall's Business

1. CashCall is a California corporation licensed under the California Finance Lenders Law, Cal. Fin. Code §§ 2200 et seq. UF No. 28.

2. CashCall is engaged in the business of making unsecured personal loans to consumers who typically do not qualify for traditional bank lending due to poor credit histories. Sept. 8 Tr. 46:12-25.

3. CashCall borrowers typically have low credit scores and have had other past credit difficulties—such as bankruptcies, foreclosures and defaults on consumer loans—which make these borrowers higher credit risks. Plaintiffs' Trial Exhibit ("Pls.' Ex.") 11 at 6 (CashCall's Answer to Interrog. No. 14), Dkt. No. 300-1 (list of Plaintiffs' Admitted Trial Exhibits⁶).

4. CashCall's unsecured personal loans leave it vulnerable to borrower default. Pls.' Ex. 11 at 6.

5. CashCall processes thousands of monthly loan installment payments for collection every month. Sept. 8 Tr. 63:11-21.

6. One percent of CashCall's net worth exceeds $500,000 for purposes of 15 U.S.C. § 1693m. UF No. 27.

B. CashCall's Conditioning Violation

7. During the Class Period, CashCall required borrowers to sign a four-page promissory note as part of its loan application process. Def.'s F&C ¶ 4; Pls.' F&C ¶ 5; see Pls.' Ex. 1 (CashCall Promissory Note and Disclosure Statement).

8. The promissory note contained an Electronic Funds Authorization and Disclosure ("EFT Authorization") that allowed CashCall to automatically withdraw loan payments directly from borrowers' bank accounts through preauthorized automatic electronic fund transfers. Pls.' Ex. 1; UF No. 3. CashCall also refers to EFTs as "Automatic clearinghouse payment, ACH payment." Pls.' Ex. 4 (CashCall Loan Servicing Department: Policies & Procedures).

9. CashCall's online loan application required borrowers to check a box to indicate their consent to the EFT Authorization. Sept. 8 Tr. 59:10-12. A copy of this EFT authorization is included below (excerpted from Pls.' Ex. 1; see also Declaration of Ethan Post, Dkt. No. 162).

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ELECTRONIC FUNDS AUTHORIZATION AND DISCLOSURE

I hereby authorize Cash Call to withdraw my scheduled Joan payment from my checking account on or about the FIRST day of each month. I further authorize CashCall to adjust this withdrawal to reflect any additional fees, charges or credits to my account. I understand that CashCall will notify me 10 days prior to any given transfer If the amount to be transferred varies by more than $50 from my regular payment amount. I understand that this authorization and the services undertaken by CashCall in no way alters or lessens my obligations under the loan agreement. I understand that I can cancel this authorization at any time (Including prior to my first payment due date) by sending written notification to CashCall. Cancellations must be received at least seven days prior to the applicable due date.

[v]

I UNDERSTAND CASHCALL'S PAYMENT COLLECTION POLICY AND AUTHORIZE ELECTRONIC DEBITS FROM MY BANK ACCOUNT.

10. If the borrower failed to check the box consenting to the EFT Authorization, a warning message would instruct the borrower to check the box before continuing. Sept. 8 Tr. 118:13-119:8.

11. CashCall CEO Delbert Meeks testified that borrowers could not obtain a loan from CashCall without signing the EFT Authorization. Id. 89:20-23; UF No. 3.

12. The promissory note stated that borrowers would be charged (1) a nonsufficient funds ("NSF") fee if any payments failed due to insufficient funds in their bank account and (2) a fee for late payments. UF No. 4; Pls.' Ex. 1; Def.'s F&C ¶ 5; Pls.' F&C ¶ 12.

13. The EFT Authorization also stated "I understand that I can cancel this authorization at any time (including prior to my first payment due date) by sending written notification to CashCall." Pls.' Ex. 1 (excerpt above); Defendant's Trial Exhibits ("Def.'s Ex.") AP, Dkt. No. 300-2 (list of Defendant's Admitted Trial Exhibits).

14. Dr. Bruce Carlin, a consumer finance expert, testified that the EFT Authorization clearly disclosed that the borrower was authorizing CashCall to make electronic withdrawals and could cancel the authorization at any time, and that CashCall would charge the borrower a fee if a payment was returned for nonsufficient funds. Sept. 9 Tr. 265:2-266:6.

15. CashCall made a total of 155,147 consumer loans to 135,176 California borrowers during the Class Period. Def.'s Ex. AN; UF No. 8; Pls.' F&C ¶ 47; Def.'s F&C ¶ 37.

C. Borrowers' Post-Funding Interactions with CashCall

16. CashCall made a "welcome call" to each borrower after their loans were approved and funded. Pls.' Ex. 3 at DEF 0281 (CashCall New-Hire Training Manual); Sept. 9 Tr. 186:23-187:6; 192:9-21.

17. During the welcome call, CashCall reviewed the amount of the first payment with the borrower and informed him or her that the payment would be drafted via EFT. Pls.' Ex. 4 at 16-17; Sept. 9 Tr. 196:17-21.

18. Borrowers could also change the scheduled date of the EFT payment during the welcome call. Pls.' Ex. 4 at 16-17; Sept. 9 Tr. 192:22-24.

19. Dr. Carlin listened to recordings of welcome calls and opined that CashCall clearly disclosed information...