Background
In 2008, Fifth Third Bank launched an Early Access program allowing customers to advance money into their checking accounts in exchange for a 10 percent transaction fee. The bank disclosed this fee and stated it equated to a 120 percent annual percentage rate. However, because the loans were repaid upon the next deposit, the actual annual percentage rate varied significantly, often exceeding 120 percent. William Klopfenstein sued on behalf of a class, alleging breach of contract and violations of the Truth in Lending Act. A jury found that the bank breached the contract but applied the voluntary-payment defense to bar recovery, concluding that customers paid with full knowledge of the relevant facts. The class appealed, arguing the bank could not assert the defense because the customers made a mistake of fact, not law.
The court’s reasoning
The Sixth Circuit explained that under Erie Railroad Co. v. Tompkins, federal courts must apply state substantive law. However, when state law is unsettled, the court should not speculate. The court noted that the Supreme Court of Ohio has not addressed the voluntary-payment defense in over five decades. While lower Ohio courts have offered conflicting guidance on whether errors regarding price terms constitute mistakes of law or fact, there is no controlling precedent from the state’s high court. The court found that the modern context of standardized consumer contracts of adhesion differs significantly from the historical origins of the defense. Consequently, the court certified two questions to the Supreme Court of Ohio: how relevant facts are defined for the voluntary-payment defense, and whether the defense applies to contracts with two potentially conflicting price terms.
What it means going forward
The case is remanded to the Supreme Court of Ohio for a definitive ruling on the scope of the voluntary-payment defense in the context of consumer lending contracts with ambiguous pricing terms. Until that ruling is issued, the federal court cannot determine whether the class is entitled to recover damages for the bank’s breach of contract.
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