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Prayitno v. Nextep Funding, LLC

United States District Court, N.D. Illinois, Eastern Division

December 3, 2019

CHAN-LI PRAYITNO, Plaintiff,
v.
NEXTEP FUNDING LLC, Defendant.

          MEMORANDUM OPINION AND ORDER

          HON. JORGE ALONSO, UNITED STATES DISTRICT JUDGE

         In this putative class action, plaintiff Chan-Li Prayitno claims that, in offering him a loan to defray car repair expenses, defendant Nextep Funding LLC (“Nextep”) failed to disclose the loan's true credit terms at an exorbitant rate of interest, violating the Truth in Lending Act (“TILA”), 15 U.S.C. § 1601 et seq., the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”), 815 ILCS 505/1 et seq., the Illinois Consumer Installment Loan Act (“CILA”), 205 ILCS 670/20(d), and the Illinois Interest Act, 815 ILCS 205/4. Defendant has disclosed an expert witness, whose testimony it seeks to offer on the range of other credit options that would have been available to plaintiff. Plaintiff has moved to exclude the expert's testimony as inadmissible under the Federal Rules of Evidence and the standards set forth in Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993). For the following reasons, the Court denies the motion.

         BACKGROUND

         In February 2017, plaintiff's auto transmission failed. He had his vehicle towed to Atomic Transmission, where he learned that he could have his transmission either rebuilt, at a cost of $2, 105, or replaced with a used transmission, at a cost of $995. Plaintiff could not afford the rebuilt transmission, but he believed he could raise enough to pay for a used transmission. According to the owner of Atomic Transmission, however, a rebuilt transmission is more reliable than a used transmission, and plaintiff learned that Atomic Transmission could arrange an extension of credit to finance the repair.

         Atomic Transmission presented plaintiff with a document, captioned as a “Merchandise/Service/Repair Contract” (“MSR contract”) under the Nextep logo. On page 2, the document warned that “[b]y signing . . . you are entering into a Closed End Consumer Product Lease, ” and it described the payment structure as follows: “To satisfy your lease obligation and purchase and own your property you must make one in-store payment of 340.00 and 17 lease payments of 245.58, plus a final residual payment of 201.06.” (Id. at 3.) Thus, the MSR contract required plaintiff to pay a total of $4, 715.92, $2, 610.92 more than the repair cost of $2, 105.

         Although it disclosed this sequence of installment payments, the MSR contract did not disclose the annual percentage rate (“APR”), which, according to plaintiff, defendant was required to disclose under TILA. Plaintiff alleges that he entered into the MSR contract without understanding how much he would pay in interest. According to plaintiff, the MSR contract documents were misleading as presented to him, and, if he had known that the contract required him to pay an APR in excess of 140%, he would have either purchased the cheaper used transmission or tried to arrange for a cheaper loan elsewhere, as he would not have knowingly paid an APR at or above 140%. Plaintiff alleges that he attempted to pay off the loan early, but Nextep quoted him a higher payoff amount than he expected, and he could not determine from the documents whether the quoted amount was correct. Additionally, plaintiff claims that the cost of the credit was in excess of the limits imposed by the Illinois Interest Act.

         Defendant has retained Eric Forster to provide expert opinion testimony on the range of financing options that would have been available to plaintiff. Mr. Forster has worked for over thirty years in the “real estate finance industry as a mortgage originator and underwiter.” (Def.'s Resp. Br. Ex. C, Decl. of Eric Forster, ¶ 7.) He holds a master's of business administration degree and a certificate in financial forensics, and he regularly provides expert testimony in matters concerning standards and practices in mortgage lending, including matters concerning alleged TILA violations. He acknowledges that he has “spent [his] career primarily as a real estate lender, ” but he has fielded “many requests over the years for alternative and unsecured loans, ” which he has typically referred to lenders who specialize in the appropriate field. (Id. ¶ 9.)

         According to his expert report, Mr. Forster proposes to testify that, under general principles of loan underwriting, lenders typically consider three factors in making credit decisions: the applicant's credit rating; his income; and the value of any collateral. Mr. Forster opines that prospective lenders would have viewed plaintiff as a significant credit risk based on his weak credit rating and relatively low provable income, particularly to the extent he might have sought credit without pledging any collateral or by pledging only his car. As a result, Mr. Forster opines, plaintiff likely would not have been able to obtain the credit necessary to repair his car from any other lender, and even if he could have, the APR would have been higher than 140%.

         According to Mr. Forster, a consumer in plaintiff's position generally would have three basic credit options: (1) an auto title loan, (2) a payday loan, and (3) a small consumer loan. Auto title loans are tied to the appraised value of the car, and considering that, after subtracting the value of the repair, plaintiff's car was only worth about $300, an auto title loan would not have been a viable option for him; even if plaintiff could have been approved for one, it would have been at a very high APR, above 140%. Similarly, any payday loan plaintiff might have been able to obtain would have been at a high APR. In fact, based on Mr. Forster's research into Illinois payday lending, it would have been above 300%, far higher than the 140% plaintiff was required to pay under the MSR contract. As for small consumer loans, Mr. Forster searched for Illinois lenders licensed under CILA, but he found that “the majority of these lenders do not publicly disclose their underwriting criteria.” (Id. ¶ 52.) However, Mr. Forster found two examples of such lenders that did disclose at least some underwriting criteria, and plaintiff would not have qualified for a loan from either: the first, Illinois Lending, required an income of at least $300 per week and the other, “Total Loan Company, ” required a minimum income of at least $1, 500 per month-but plaintiff made only about $1, 000 per month. Mr. Forster concluded that, given plaintiff's low income and credit rating, the other lenders were also unlikely to offer plaintiff credit, in the absence of any valuable collateral.

         ANALYSIS

         “The admission of expert testimony is governed by Federal Rule of Evidence 702 and the principles outlined in Daubert [v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993)].” Bielskis v. Louisville Ladder, Inc., 663 F.3d 887, 893 (7th Cir. 2011); see also Kumho Tire Co., Ltd. v. Carmichael, 526 U.S. 137, 147-49 (1999) (extending application of Daubert standard to non-scientific experts). Federal Rule of Evidence 702 provides as follows:

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:
(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence ...

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