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Confirmed Judges, Confirmed Fears: Joan Larsen Would Let Bank Enforce Confusing Paycheck-Advance Loan Agreements

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Confirmed Judges, Confirmed Fears: Joan Larsen Would Let Bank Enforce Confusing Paycheck-Advance Loan Agreements

Confirmed Judges, Confirmed Fears” is a blog series documenting the harmful impact of President Trump’s judges on Americans’ rights and liberties.

Trump judge Joan Larsen dissented from a Sixth Circuit panel decision that protected borrowers from a confusing contract imposed on them by their bank. The May 2019 case was Laskaris v. Fifth Third Bank (In re Fifth Third Early Access Cash Advance Litigation). At issue was whether a paycheck-advance loan contract had clearly defined the term “annual percentage rate” (APR).

Fifth Third Bank offered short-term loans to clients to tide them over until their next paycheck. As soon as the next direct deposit came through, or 35 days after the loan (whichever came earlier), the bank automatically removed the loan amount from the client’s account, plus an additional ten percent “transaction fee.”

Using the widely accepted definition of the term, the bank’s contract defined the annual percentage rate (APR) as being “expressed as a yearly rate.” Use of an APR lets consumers more easily compare borrowing options that have different repayment periods. So, for instance, ten percent interest for a two-month loan, a one-month loan, and a one-day loan would—if expressed as yearly rates—translate into 60 percent APR, 120 percent APR, and 3,650 percent APR, respectively.

The contract stated that the APR was 120 percent. But it stated that the only cost to the client was the ten percent transaction fee—regardless of how quickly the loan was paid off—and this is what it characterized as a 120 percent APR. Clients who were charged the ten percent fee for loans they paid off in less than 30 days sued the bank, asserting that the 120 percent APR promised in the contract bore no relation to the actual annual cost of borrowing under the bank’s loan program. Fifth Third, on the other hand, argued that the contract was clear that the fee would be ten percent regardless of how quickly the loan might be paid off. The lower court ruled in favor of the bank, finding the contract clear.

The Sixth Circuit panel majority reversed that judgment and remanded the case back to the trial court. In an opinion authored by Judge Richard Griffin (a George w. Bush nominee), the court explained why the term “annual percentage rate” in the contract was inarguably ambiguous:

No interpretation of the contract can give effect to one definition that specifies that APR is “expressed as a yearly rate” while also giving effect to a formula that precludes such an expression.

Judge Larsen disagreed, concluding that the contract was clear that the fee would be ten percent regardless of the length of the loan. In her view, regardless of the contract’s explicitly defining APR as being expressed as a yearly rate, the contract was clear that APR was not to be defined as being expressed as a yearly rate.

With the case being remanded, the trial court can determine if it was clear what the contractual terms really meant. Those who borrowed from the bank will get their day in court, as will the bank. Had Judge Larsen’s dissent carried the day, only the bank would have been heard.