When most people think of lawsuits against predatory lenders, they picture small, unimportant cases that take years to go through the courts and end in settlements that no one ever hears of. That was never going to be the Kennedy v. Wildcat case. This case went from a federal courtroom in Virginia to a $1.5 billion settlement that made headlines across the country. It was one of the biggest fights over consumer finance in recent years, and it had very real effects on the millions of Americans who took out high-interest loans through tribal lending companies.
The lawsuit, which was brought in the Western District of Virginia, was based on a simple but annoying claim: a group of online lenders was charging interest rates that were much higher than what each state’s laws allow. It was said that the companies involved were connected to tribal groups, which meant that state usury laws, which limit how much interest a lender can charge, did not apply to them. This legal move, which is sometimes called the “tribal immunity” defense, has been used by tribal lenders for years. The courts are becoming less and less sure about it.
This wasn’t just a legal dispute at its core. People really did need a few hundred dollars, went to a website at 2 a.m., and ended up having to pay back twice or three times what they borrowed. Some of these loans had interest rates that were over 300 percent a year. It’s not a mistake. For people who were already living from paycheck to paycheck, those terms could quickly become something they couldn’t get out of.
The size of the final settlement, which was reached after years of court cases, showed how bad the damage was. As part of the deal, all class members were given cash payments and nearly $1.4 billion in debt was forgiven. You should take a moment to think about that part about getting rid of debt, because that kind of relief doesn’t always get the attention it deserves. A $50 or $200 check means something. It is a whole different thing when a federal court tells a lender to erase what you owe.
A lot of people who were affected by the defaults went to settlement websites like ConsumerLoanSettlement.com to try to figure out what they were owed and how to get it. A lot of people posted screenshots of checks on social media and asked if they were real and if cashing them would cause trouble in some way. That particular worry seemed telling. When you’ve been ripped off by a financial product this pushy, a settlement check doesn’t always feel like good news. It might feel like another trap.
At this point, it’s still not clear how many people really benefited financially from the settlement. Pro rata reductions, in which payouts go down if too many valid claims come in, are a small thing that can change a good number into a bad one. Still, even some debt relief would have been big for some borrowers.
Finally, the Fitzgerald v. Wildcat case showed that it wasn’t just one company or group of lenders. The case pointed to a bigger problem: a system with lots of regulatory gaps and complicated jurisdictions that made it really hard for regular borrowers to know if the loan they were signing was legally binding in any way. That part of the story will always be there, even after the settlement checks clear.
Cases like this one have been used by consumer advocates to show that federal courts need to make it clearer what the rules are for cross-state online lending. Another question is whether Congress will ever do something about that. No one in Washington seems very eager to answer that question right now.
