Carnegie v. Household International, Inc.

Lynn Carnegie and others (plaintiffs) filed class-action suits against Household International, Inc. (the bank) and certain tax preparers (defendants) on behalf of 17 million borrowers each seeking damages of $15 to $30. The suits alleged violations of various state and federal laws, including the Racketeer Influenced and Corrupt Organizations Act, in connection with refund-anticipation loans (RALs). An RAL was a loan by a bank to a customer of the amount of an anticipated tax refund from the Internal Revenue Service (IRS). The loan was arranged by the tax preparer who filed the refund claim with the IRS on behalf of the customer. The complaint alleged that RAL customers were led to believe that the tax preparer was their fiduciary and were not told that the bank paid the tax preparer a fee nor that the tax preparer received an ownership interest in the loans. One of the customers who filed an action entered into a settlement agreement with the bank and tax preparers that was to be a global settlement, settling all claims arising out of RALs. The district court approved the settlement, but the Seventh Circuit reversed because of concern that the settlement was the result of collusion between the class lawyers and the bank and tax preparers. The district court disapproved the settlement on remand and certified the same class that had been contemplated by the rejected settlement. On appeal, the bank and tax preparers challenged the adequacy of representation of the class, objecting to the judge’s procedure and brevity in determining that the class was manageable despite its size.