July 13, 2010 - In this action, Abbey Spanier, with co-counsel, represents Joshua G. Fensterstock (plaintiff), a New York attorney who brought suit against Education Finance Partners and Affiliated Computer Services as a result of their application of hidden penalties to his law school loan. Plaintiff graduated from law school in 2003, and in 2006 he consolidated his loans with Education Finance Partners. Plaintiff's loan was serviced by ACS.
Despite plaintiff's timely payments, the defendants applied a hidden penalty to his loan, diverting his payments entirely to interest when they were not received on the exact monthly due date--even if the payments were received early. Plaintiff was never charged a late fee, and was never late in paying his loans. Plaintiff alleged that if the defendants were permitted to continue applying his payments to interest only, he would never be able to pay off his loan and would have to make an enormous lump sum payment at the end of the loan payoff period.
The loan contract had an arbitration clause and class action waiver, which required that all claims against the defendants be arbitrated on an individual, non-class basis.
In yesterday's decision, the Second Circuit ruled that the arbitration clause and class action waiver were unconscionable, and unenforceable, under California law. In coming to its conclusion, the court noted the utility of class actions in a context such as this, where each member of the class has suffered a small amount of damages and would likely have no incentive to pursue the case individually. The court also declined to refer the case to class arbitration, holding that, in light of a recent U.S. Supreme Court decision, the parties could not be compelled to submit to class wide arbitration because they had not agreed to it.
To read the full decision, click here.
If you would like more information on this case, please contact:Orin Kurtz
212.889.3700
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