Lenders to Georgia consumers may no longer be able to rely on out-of-state forum selection clauses and class action waivers in payday and consumer loan agreements. The Eleventh Circuit has affirmed that Georgia's Payday Lending Act (PLA) and the Georgia Industrial Loan Act (GILA) supersede contrary provisions in loan agreements. The PLA prohibits lenders from using out-of-state forum selection clauses, and both the PLA and GILA expressly permit class actions, Notwithstanding contract provisions waiving these rights agreed to by both parties to the contract, the court held that Georgia law "articulate[s] a clear public policy against enforcing forum selection clauses . . . and in favor of preserving class actions." Furthermore, the court rejected arguments that the PLA does not apply to out-of-state lenders, finding that such a holding would "undermine the entire purpose of the PLA."
Thus, forum selection clauses and class action waiver provisions in loan agreements governed by the PLA and GILA were held to be unenforceable — and a class action alleging substantive violations of the Georgia lending laws has been allowed to proceed. Courts are typically hesitant to intervene in contracts on the basis of public policy, but the Eleventh Circuit pointed to a "solid foundation" for doing so, based on Georgia's constitution and lending laws.
On the issue of class action waivers, the lender was unsuccessful in highlighting Supreme Court precedent overriding state laws with regard to class action waivers in arbitration agreements. While the primary effect of such provisions may be to prevent class actions, the federal statute cited by the Supreme Court, the Federal Arbitration Act, creates a strong federal public policy in favor of arbitration, rather than class action waivers specifically.
Interestingly, the court noted that it held that an identical forum selection clause was valid and enforceable under Alabama law. Thus, whether such clauses are enforceable depends on state laws, rather than generally applicable principles.
The Eleventh Circuit's ruling may yield an increase in class action activity by Georgia consumers. Outside of Georgia, lenders may want to review the applicable lending statutes to evaluate the strength of similar contractual provisions under the laws of other states should other circuits adopt the Eleventh Circuit's reasoning.