Marriott Employees Federal Credit Union won’t pay damages in a suit alleging Truth in Lending Act violations, but a federal judge has refused to dismiss the case outright.
A recent decision from Wendy Beetlestone, district judge in the U.S. District Court, Eastern Division of Pennsylvania, dismissed plaintiffs’ claims for financial damages, though the judge did not throw out the case.
MEFCU’s mini-loans are available only to members who are employees of its sponsor companies, including the Marriott International. According to the original suit, in order for the loan to be issued, eligible members must agree to have a minimum of $33 per week deducted from their wages and deposited into an account at the credit union. Such members also are required to authorize the credit union to conduct payroll deductions, including an additional $10 weekly deduction which plaintiffs claim amounts to a “security interest” for the loan.
The plaintiffs’ complaint notes that MEFCU charges a $35 application for each mini-loan despite not running credit checks on applicants. That fee is required even if a borrower has previously applied for or paid off a mini-loan.
The suit also claimed that MEFCU avoids the National Credit Union Administration’s 18 percent cap on interest rates on loans through implementation of its application fees. In fact, the plaintiffs alleged that when application fees are included as part of the overall finance charge, each mini-loan actually carries an effective APR of 46 percent.
The judge agreed with the plaintiff’s assertion that the application fee should have been included in the finance charge and APR determination.
In a court document from January 9, Beetlestone wrote “plaintiffs allege various facts that… create the reasonable inference that the $35 fee is not an application fee -- both because the fee is not charged to employees whose loan applications are rejected, and because the fee is not connected to the costs of processing applications for credit.”
As a result, the judge wrote, MEFCU's argument to dismiss “must be rejected.”
The judge also expressed some doubt about how clearly the credit union disclosed the aforementioned “security interest” in its loan applications. “It is entirely unclear from the documents provided to plaintiffs what security interest MEFCU would obtain by making the loan,” the judge wrote.
Judge Beetlestone added “this is not a clear disclosure as required by Regulation Z [of TILA], and therefore MEFCU's motion to dismiss on this point will be denied.” However, she also denied the plaintiff’s call to receive actual damages, by citing that plaintiffs failed to show “detrimental reliance.”
According to the law firm of McCabe Rabin P.A., detrimental reliance is a "legal concept under the law of contracts. Ordinarily, a valid contract requires a proper exchange of consideration between the parties."
“Plaintiffs' position, on the other hand, is less clear,” the judge wrote. “They appear to advocate either for a rule that would essentially assume detrimental reliance where any inaccurate disclosures had been made.”
The case has been referred to magistrate Judge Richard Llorety of the U.S. District Court for the Eastern District of Pennsylvania, for a “settlement conference,” defined by the American Bar Association as a meeting with a judge to attempt to settle a suit before it comes to trial.
Motion for summary judgment will be due by Nov. 29, 2019.
Neither the credit union nor attorneys for parties on either side of the case have not responded to requests for comment.
