Wombold v. Associates Financial

Can Montana Borrowers Sue a Lender Under the Consumer Loan Act? Wombold v. Associates Financial Services Co. of Montana, 2004 MT 397

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Yes. In Wombold v. Associates Financial Services Co. of Montana, 2004 MT 397, the Montana Supreme Court held that the Montana Consumer Loan Act gives borrowers a limited private right of action, even though the Act does not say so expressly. It also held that the “points” Associates charged on real-estate-secured loans were not interest but an unauthorized fee the Act prohibits. The Court affirmed partial summary judgment for the borrower class, and the case later settled for $25 million.

Key Takeaways

  • A statute can create a private right to sue by implication. The Court asks four questions: consistency with the statute as a whole, legislative intent from the plain language, avoiding absurd results, and any agency construction (Wombold ¶ 35).
  • The Act’s attorney-fee provision for actions “on a contract” was “proof of a legislative intent to recognize a private right of action” (¶ 42).
  • Points that were a flat percentage of the loan, not tied to actual costs, and front-loaded into the principal were “not interest,” so charging them violated the Act (¶ 59).
  • The Court did not decide what remedy follows, including whether the loans are void (¶¶ 47, 66–67).

In this case sheet: At a glance · What the Court held · What changed · Statutes · When it applies · How hard · Later decisions · FAQ

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At a glance

CitationWombold v. Associates Financial Services Co. of Montana, Inc., 2004 MT 397, 325 Mont. 290, 104 P.3d 1080
CourtMontana Supreme Court. Opinion by Justice John Warner, joined by Justices Gray, Leaphart, Cotter, Regnier and Nelson. Justice Rice concurred in the result on different reasoning.
DecidedDecember 30, 2004 (argued July 28, 2004)
DocketNo. 03-808, on appeal from the Eighth Judicial District, Cascade County (Cause No. BDV 2000-888)
ResultPartial summary judgment for the borrower subclass affirmed; remanded. The borrowers’ cross-appeal on voidness was not reached.
Counsel for the Wombolds and the classThomas E. Boland (argued) and Jeremiah C. Lynch (argued), Great Falls
Later historySettled on remand for $25 million (In re Brown, 363 B.R. 591 (Bankr. D. Mont. 2007))
Read the opinionOpinion (PDF)

Case documents

Read the full opinion (PDF) →

What did the Montana Supreme Court hold in Wombold?

James and Elizabeth Ann Wombold sued Associates, a lender licensed under the Montana Consumer Loan Act, over the terms of their real-estate-secured loan. The case was certified as a class action, with a subclass of borrowers whose loans were secured by real property (¶¶ 1, 24).

The parties stipulated to the key facts:

  • From 1995 through 2000, Associates made 3,833 real-estate-secured loans in Montana and charged points on 2,818 of them (¶¶ 10, 13).
  • The points ranged from zero to ten percent of the amount financed and, except in rare instances, were not tied to third-party costs (¶¶ 12, 14).
  • The points were added to the principal, and interest was charged on them. They were not refunded when a loan was paid off early, except partially on refinances within one year (¶¶ 15–19).

The district court granted partial summary judgment to the borrowers. The Supreme Court affirmed on both questions it decided:

  1. Private right of action. The Act does not expressly authorize or forbid private suits (¶ 34). Applying the four-part test (¶ 35), the Court relied on:
  2. the Act’s protective purpose and the rule that remedial laws are liberally construed (¶¶ 36–37);
  3. the voidness remedies, which benefit only borrowers (¶¶ 39–41);
  4. the attorney-fee provision for actions “on a contract,” which the regulating agency would never bring (¶ 42);
  5. the absence of any absurd result (¶ 45);
  6. the Attorney General’s amicus brief supporting a private right (¶ 46).

It held that the Act provides “a limited private right of action,” without deciding its extent (¶ 47).

  1. Points were not interest. Interest is a charge “for the use, forbearance, or detention of money” (¶ 52). A flat, front-loaded fee computed as a percentage of the loan and unrelated to specific costs is not (¶ 59). Because the Act forbids charges it does not authorize, the points violated it (¶¶ 49, 59). The Court declined to read the Act to contain “a loophole whereby predatory lenders may add points” to escape the refund rules (¶ 60).

Because the points were not interest, the Court did not need to decide the alternative refund question (¶ 63). It declined to reach the borrowers’ cross-appeal on whether the loans were void, because remedy was outside the Rule 54(b) certification (¶¶ 66–67).

Justice Rice concurred. He would have held that the points were interest, but that Associates still violated the Act by charging up-front interest without the refunds required for add-on loans (¶¶ 69–77).

What did Wombold change in Montana law?

  • It became a leading citation for implied private rights of action. The Court applied four statutory-construction questions, quoted from Montana Power Co. v. Cremer, to decide whether the Act implies a right to sue (¶ 35). The Court later described this as the same test it had used in Klaudt v. Flink (1983) (Ibsen ¶¶ 24, 32).
  • It confirmed that borrowers can enforce the Consumer Loan Act themselves, not only through the regulating department (¶¶ 33, 47).
  • It looked past labels. A charge is not interest just because the parties call it that; what matters is what the charge is for (¶¶ 53, 59).

Later use of the test. In Mark Ibsen, Inc. v. Caring for Montanans, Inc., 2016 MT 111, the Court described Wombold‘s analysis in detail and applied “the four-part test we applied in Klaudt and Wombold” prong by prong (Ibsen ¶¶ 31–33, 47–49). There it concluded that the Unfair Trade Practices provisions at issue did not imply a private right of action. The test is neutral: it asks what the Legislature intended, and the answer depends on the statute. Faust v. Utility Solutions, LLC, 2007 MT 326, also revisited the analysis (Ibsen ¶ 34).

The settlement. On remand the class action settled for $25 million, distributed among four borrower groups (In re Brown, 363 B.R. 591 (Bankr. D. Mont. 2007)).

Which Montana laws and rules apply?

These statutes have changed. The 1997 Legislature had already removed first mortgage loans from the Act before this suit (¶ 22). Since 2004, §§ 32-5-103, 32-5-301 and 31-1-112 have been amended several times, including by Initiative No. 164 (2010) and in 2013. Read the current text rather than assuming it matches what the Court applied.

When might Wombold apply to you?

  • A loan with fees you did not expect. Charges on a Consumer Loan Act loan must be authorized by the Act. A fee is judged by what it is for, not what the lender calls it (¶¶ 49, 53, 59).
  • A statute protects you but does not say you can sue. Wombold‘s four-part test decides whether a private right of action is implied (¶ 35). As Ibsen shows, the answer can go either way.
  • Many people charged the same way. Wombold was a class action over thousands of loans with a common practice (¶¶ 13, 24).

How hard is a Consumer Loan Act case in Montana?

  • Legal questions are reviewed fresh. Summary judgment, conclusions of law and statutory interpretation are all reviewed de novo (¶¶ 29–30).
  • The borrower must fit the Act. First mortgage loans made after the 1997 amendment were outside the Act, which narrowed the class (¶ 22).
  • Agency practice gets deference only if it is a real interpretation. Associates argued the department had approved points. The Court found no “actual interpretation” by the department, and a compromise consent order did not count (¶ 56).
  • Appeals decide only certified issues. The remedy question was left for remand because it was not within the Rule 54(b) certification (¶ 67).

Statutes and rules

Later decisions citing this case

The Boland Aarab Way

Thomas E. “Tom” Boland and Jeremiah C. Lynch represented the Wombolds and the borrower class, and both argued the appeal. Tom was admitted to practice in 1974 and practiced in Great Falls from 1979. In 2017 his daughter, Caitlin Boland Aarab, and Samir F. Aarab founded Boland Aarab PLLP as the successor to his practice. Wombold began as a Cascade County lawsuit by one Great Falls couple and ended with a published rule and a settlement for thousands of borrowers. That is the kind of patient, record-driven work we still do, now in catastrophic injury cases and serious trucking and injury cases.

Frequently Asked Questions

Can I sue a lender in Montana for violating the Consumer Loan Act? The Montana Supreme Court held that the Act provides “a limited private right of action” for borrowers (Wombold ¶ 47). It did not define the full extent of that right or the available remedies (¶¶ 47, 66).

Are loan “points” interest under Montana law? Not always. In Wombold, flat, front-loaded points computed as a percentage of the loan and unrelated to specific costs were a fee, not interest (¶ 59). The label the parties use does not control (¶ 53).

How does a Montana court decide whether a statute lets private citizens sue? It asks whether that reading is consistent with the statute as a whole, reflects the Legislature’s intent from the plain language, avoids absurd results, and matches any agency construction (Wombold ¶ 35; Mark Ibsen, Inc. v. Caring for Montanans, Inc., 2016 MT 111, ¶ 32).

Work With the Lawyers Behind These Cases

Boland Aarab is a Great Falls trial firm and the successor to Tom Boland’s practice. The same attorneys who brief and argue before the Montana Supreme Court handle our clients’ serious injury, trucking and wrongful-death cases from the first call. Contact Boland Aarab PLLP for a free consultation at (406) 315-3737.

About Boland Aarab PLLP: Boland Aarab PLLP is a Great Falls, Montana trial firm. Its attorneys, Caitlin Boland Aarab and Samir F. Aarab, have appeared in more than 40 matters before the Montana Supreme Court and have argued twice before the U.S. Court of Appeals for the Ninth Circuit. The firm carries on the Great Falls practice Thomas E. Boland began in 1974. Meet our attorneys.

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Disclaimer: This article is for informational purposes only and does not constitute legal advice. Reading it does not create an attorney-client relationship.