In January 2023, a federal district court in Texas dismissed Michael v. Opportunity Financial, LLC, a putative class action filed in June 2022 claiming that fintech Opportunity Financial, LLC (OppFi), not its out-of-state, state-chartered bank partners, is the “true lender” on loans with interest rates permitted under the laws of the banks’ home states, but higher than allowed in the plaintiffs’ states.  OppFi’s marketing and servicing arrangements on behalf of the state banks that made the loans were characterized in the complaint as a “rent-a-bank scheme.”  The complaint also raised Racketeer Influenced and Corrupt Organization Act (RICO) claims and other claims against OppFi.  The court compelled individual arbitration and dismissed the action based on the arbitration clause.

In March 2023, in Johnson v. Opportunity Financial, LLC, a second federal district court (this time in Virginia) also compelled individual arbitration and dismissed a putative class action filed by the same plaintiffs’ counsel that asserted the same claims as in Michael.  As in Michael, the Virginia court held that the arbitration clause was neither substantively nor procedurally unconscionable.  In particular, it disagreed with the plaintiff’s argument that the length of the agreement and its font size rendered it unconscionable, agreeing instead with OppFi’s position that the documents were provided electronically and the plaintiff could have zoomed in on her computer to see the wording of the arbitration clause:

This argument is really an attempt to excuse the fact that Johnson did not read the contract before signing.… Virginia courts are not sympathetic to parties who do not read contracts before signing them.  A party “having the capacity to understand a written document” is “bound by his signature” unless he can prove “fraud, duress, or mutual mistake.”  This applies even if the complaining party did not read the contract. In this case, Johnson had access to the contract by way of her computer and could have read the contract, but she chose not to read it.  The [arbitration clause] is referenced in numerous places throughout the contract, including in bold text.  The [arbitration clause] is hardly hidden—it takes multiple pages and is formatted as a table.  Each of the [arbitration clause’s] provisions are defined in plain English.  Though the text is small, the questions and plain English answers are bolded.  The fact that Johnson did not read the contract does not mean that she could not read it.

Nevertheless, the same plaintiffs’ counsel had better success in Carpenter v. Opportunity Financial, LLC, in which a California federal district court, later in March 2023, denied OppFi’s motion to compel arbitration in another putative class action raising the same claims as in Michael and Johnson.  Unlike the Michael and Johnson courts, the Carpenter court found the arbitration clause to be “procedurally unconscionable due to legibility and technological issues, and substantively unconscionable because it impermissibly waives Plaintiff’s substantive rights under the California Financial Code.”

In support of its unconscionability findings, the Carpenter court cited the small font and length of the arbitration clause, coupled with the plaintiffs’ declaration that “they accessed the Agreements through their smartphones, and when they tried to “zoom in” to read the small font, the website glitched, refreshed, and reset the application to the beginning.”  OppFi argued that the plaintiffs did “not dispute they could read the agreement despite the purported technical glitches” and that the plaintiffs appeared to have “simply decided it was not worth their effort to zoom in” and “decided to just sign it without reviewing it in full or asking for technical assistance.”  The court rejected OppFi’s argument and held: 

That Plaintiffs may have been able to read the terms after making multiple attempts to overcome technological glitches and/or seeking technical assistance does not overcome the fact that they were presented with the arbitration clause in a form that challenged the limits of legibility and could not be easily and readily viewed.  Accordingly, the court finds this factor establishes a strong degree of procedural unconscionability.

OppFi has appealed the denial of its motion to compel arbitration to the Ninth Circuit Court of Appeals.

In April 2023, the same plaintiff’s counsel filed a fourth putative class action, Fama v. Opportunity Financial, LLC, in federal district court in Washington state stating the same claims against OppFi.  Once again OppFi filed a motion to compel arbitration, which summarizes the status of the other three “materially identical actions” discussed above.  In particular, in commenting on the Carpenter opinion, OppFi argues:

The plaintiffs in Carpenter claimed, in opposition to OppFi’s motion to compel arbitration, that their arbitration agreements were in 4.5 size font.  Those allegations, which the Carpenter court accepted as established fact, are untrue and meaningless in the context of an electronic document where the size of the text scales to the size of the viewing window and can be enlarged or shrunken.  Should Plaintiff in this case make similar allegations, OppFi will establish that they are meritless.

We will continue to monitor developments in these actions since an outcome favorable to the plaintiffs on the merits would pose serious concerns for bank-fintech partnerships and the enforceability of consumer arbitration clauses in electronic contracts – subjects we have counseled clients about and published articles on for many years.