2/11/2014 2:34:00 PM,
Philip A. Janquart
(CN) - A federal judge certified a class of California payday loan applicants who say a bank and a payment processor helped ZaaZoom Solutions rip them off using unauthorized electronic checks.
Lead plaintiff Amber Marsh sued ZaaZoom and its alleged accomplices in 2011, claiming they "lured" her into applying for a payday loan online and then used her bank information to enroll her in online coupon membership programs without her permission.
ZaaZoom allegedly used remotely created checks, or RCCs, drawn on the applicants' accounts to pay for the membership programs.
On Dec. 2, 2013, U.S. District Judge William Orrick entered default judgment
against ZaaZoom Solutions, Zaza Pay, MultiEcom, Online Resource Center, Automated Electronic Checking and Data Processing Systems.
A month later, the judge preliminarily approved
a $527,750 settlement
of the claims against the First Bank of Delaware, one of the two defendant banks.
Separate motions to dismiss whittled the allegations to five claims against payment processor Jack Henry & Associates, three of them falling under the unlawful, fraudulent and unfair prongs of California's Unfair Competition Law, and two federal claims for conversion and negligence.
Marsh's federal negligence claim against the First National Bank of Central Texas also survived.
In his Feb. 7 ruling, Orrick granted Marsh's motion for class certification, saying the defendants had ignored red flags.
According to the ruling, ZaaZoom had hired Jack Henry to draft and deposit the checks into accounts at both banks, earning a commission for each check deposited.
"Jack Henry deposited over 116,000 RCCs as a processor for ZaaZoom defendants, of which at least 61,000 were returned as not payable, resulting in a return rate of more than 53 percent," Orrick wrote in the 26-page opinion.
Meanwhile, the depository banks were inclined to ignore warning signs because they collected overdraft fees for the returned checks, he said.
"The processors and depository banks ignored suspicious signs of potential wrongdoing, such as the fact that the ZaaZoom defendants' checks had a return rate over 100 times the national average," Orrick wrote.
He also noted the "astronomically" high check numbers, such as check No. 1,261,849, which he described as "higher than the number of checks any actual person would issue."
Though Orrick limited class certification to a group of California residents, he said Marsh could file an amended motion for nationwide class certification in March "that addresses the deficiencies identified in this order by, among other things, identifying the state of residency for proposed class members, explaining with particularity whether any other state's laws apply and how they relate to California law."