JEFFERSON CITY • Missouri Title Loans cannot both prohibit borrowers from taking the company to court and prevent them from banding together to pursue class arbitration, the Missouri Supreme Court ruled Tuesday.
The court's 4-3 ruling could have broad impact on cases involving pre-dispute, mandatory arbitration, according to consumer law experts.
"This opinion takes consumers arbitration (agreements) head-on for they are — shackles on the consumer," said Dale Irwin, a consumer protection lawyer in Kansas City. He has testified as an expert witness on behalf of the Missouri Title Loan customers, saying they would have virtually no chance of hiring lawyers like himself for individual arbitration cases.
That is because, often, individual claims amount to less than $5,000, and lawyers are reluctant to take low-dollar cases into individual arbitration.
Yet individual arbitration was the only option allowed under Missouri Title Loans' contracts.
The company's loan agreements specifically prohibited class arbitration. Like class-action suits in court, class arbitration encourages lawyers to take small-dollar cases because clients can be bundled into large groups.
Lawyers representing consumers can put more resources into the case, because there is a bigger payoff if they win.
In 2008, St. Louis Circuit Court Judge David Dowd prevented borrowers from suing Missouri Title Loans, but he also invalidated the loan agreements' ban on class arbitration.
An appeals court upheld that ruling, and Missouri Title Loans took the case to the Supreme Court.
Because the arbitration agreement was thrown out altogether, the case likely will return to the courts to move forward as a class-action suit.
John Campbell, the lawyer representing borrowers, said in July that as many as 10,000 Missouri consumers could join as plaintiffs in the case if it were allowed to move forward.
Michael Greenfield, a professor of contracts and consumer law at Washington University, said that underlying the opinion is the belief that consumers in arbitration cases should be represented by a lawyer, even if they don't have to be.
"The business is going to show up with an attorney," he said. "If the consumer shows up without an attorney, he's at a serious disadvantage."
Borrowers accuse Missouri Title Loans of charging excessive interest and fees, and not following Missouri's Title Loan Law. The high court did not rule on those allegations.
