Antitrust Law Daily Wrap Up, RICO—M.D. N.C.: Consumer’s RICO claims against originating banks of payday loans survive motion to dismiss, (Apr 30, 2014)

By Linda O’Brien, J.D., LL.M.

A consumer sufficiently pleaded Racketeer Influenced and Corrupt Organizations Act (RICO) and unfair trade practices claims against several financial institutions that served as originators for Internet payday loans for allegedly facilitating the collection of usurious loans that were unlawful under state law, the federal district court in Greensboro has held (Dillon v. BMO Harris Bank, N.A., April 23, 2014, Eagles, C.).

Consumer James Dillon obtained five loans over the Internet from lenders that were based offshore or on Indian reservations. The loans carried significantly high interest rates and incurred thousands of dollars in interest charges. BMO Harris Bank, N.A., Bay Cities Bank, Four Oaks Bank & Trust, and Generations Community Federal Credit Union served as Originating Depository Financial Institutions (ODFIs) in connection with transactions for the loans. The ODFIs provided access on the Automated Clearing House (ACH) Network for lenders so they could electronically deposit loan proceeds and debit Dillon’s account for repayments.

Dillon filed suit against the ODFIs, alleging violations of RICO and the North Carolina Unfair and Deceptive Trade Practices Act (UDTPA), among other claims. Dillon alleged that the financial institutions knowingly facilitated the collection of usurious loans through the ACH Network and knew or should have known that the lenders were engaged in making unlawful payday loans under state law. The ODFIs moved for dismissal for failure to state a claim.

RICO. The court found that Dillon adequately alleged RICO claims based on the collection of unlawful debt. For RICO claims based on the collection of unlawful debt, the plaintiff need not show a pattern of activity, rather one act of unlawful debt collection was sufficient. In this case, Dillon sufficiently plead the required elements as to each ODFI: (1) there was a RICO enterprise; (2) its activities affected interstate commerce; (3) the defendants were associated with the enterprise; (4) the defendants used income derived from the collection of unlawful debt; (5) the defendants participated in the enterprise through the collection of unlawful debt; (6) the debt was unenforceable under state laws relating to usury; (7) the debt was incurred in connection with the business of lending money at a usurious rate; and (8) the usurious rate was at least twice the enforceable rate.

UDTPA. Dillon adequately stated a claim for relief under the UDTPA, according to the court. To establish a claim under the UDTPA, Dillon must show that the ODFIs committed an unfair or deceptive practice, the action affected commerce, and the practice proximately caused injury to the plaintiff. Unfair trade practices claims could be based on a violation of public policy even when fewer than all the elements of the Act were satisfied, the court concluded.

The case is No. 1:13-CV-897.

Attorneys: Darren T. Kaplan (Chitwood Harley Harnes LLP) for James Dillon. Debra Bogo-Ernst (Mayer Brown, LLP) for BMO Harris Bank, NA. Carl N. Patterson, Jr. (Smith Anderson Blount Dorsett Mitchell & Jernigan) for Four Oaks Bank & Trust. Reid Calwell Adams, Jr. (Womble Carlyle Sandridge & Rice) for Generations Federal Credit Union. Mark Vasco (Bryan Cave, LLP) for Bay Cities Bank.

Companies: BMO Harris Bank, N.A.; Bay Cities Bank; Four Oaks Bank & Trust; Generations Community Federal Credit Union

Cases: RICO StateUnfairTradePractices NorthCarolinaNews