Courts generally bend over backwards to enforce a freely negotiated arbitration provision, especially between commercial parties. But a recent case from the 7th Circuit Court of Appeals in Chicago provided an exception in striking down an unusual arbitration provision between a usurious lender and some financially-distressed individuals.

Deborah Jackson, Linda Gonnella, and James Binkowski lived in Illinois and apparently ran into financial difficulties. In 2010 or 2011, each of them borrowed $2,525 from loan companies owned and controlled by Martin Webb. Each transaction was completed online through websites operated by the loan companies. One of the loan companies was Payday Financial, LLC but there were others. Some of the loans were assigned to CashCall, Inc., a California corporation. (In the decision, the court referred to Mr. Webb and his web of entities as the "Loan Entities.")

The financial terms of these loans were pretty severe. For a $2,525 loan, the borrowers would pay, over time, $8,392 at an annual interest rate of 139%. The borrowers paid on the loans but it was not clear if the borrowers ever defaulted on the loans.

Whether in default or not, the borrowers were not happy. They sued the Loan Entities in Illinois state court, later removed to federal court. The claim was based on violations of criminal and civil usury statutes and fraud and deceptive practices. The borrowers sought damages, restitution, costs, and an injunction preventing the Loan Entities from making additional loans to Illinois residents.