A Fort Worth technology-based financial lender has agreed to pay $33 million as part of a pending settlement agreement related to a web of litigation across the United States, which alleged a decadelong scheme of predatory lending and subsequent corporate transactional legal maneuvering that victimized more than a million low-income people.
Elevate Credit, a 2014 spinoff of the now-defunct Think Finance, which also was based in Fort Worth, agreed to make the $33 million payment as part of a larger $44.5 million settlement that aims to resolve three certified class actions from Virginia and California and adversary bankruptcy proceedings in Dallas federal court.
Lawyers for 1,037,091 alleged victims accused Think Finance and its executives of operating a fraudulent internet lending business that generated billions of dollars in revenues through a so-called “rent-a-tribe” scheme that exploited Native American tribes by loaning money to those with bad credit at triple-digit interest rates.
When federal and state regulators cracked down on predatory lenders in 2013 and 2014, Think Finance created a new entity called Elevate Credit. Think Finance “transferred its assets out of the reach of creditors through a purported tax-free spin-off” and left all liabilities with Think Finance with no means of compensating the victims, according to court documents.
“Consumer borrowers were often financially devastated under the burden of exorbitant interest rates,” Cole Schotz partner James Walker, a Dallas lawyer appointed to represent the Think Finance Litigation Trust, wrote in court documents filed in the Northern District of Texas bankruptcy case.
Lawyers on both sides declined to provide comments about the litigation or the settlement agreement to The Texas Lawbook.
Walker filed a complaint as part of an adversarial bankruptcy proceeding in Fort Worth in 2020 accusing Elevate executives of three counts of intentional fraudulent transfers of assets for the sole purpose keeping creditors from collecting.
Details of the settlement agreement surfaced late Thursday in the federal court case pending in Virginia. The litigation and subsequent bankruptcy proceedings in the Northern District of Texas involves lawyers from multiple Texas law firms, including Reese Marketos, Forshey Prostok and Cole Schotz.
The $44.5 million settlement, including Elevate’s $33 million contribution, must receive final approval from the federal judge in the Virginia class action, which lawyers familiar with the litigation say could occur by the end of this week.
2011: Think Finance, previously known as “ThinkCash,” worked with the Chippewa Cree Tribe and Otoe-Missouria Tribe to create online financial lending companies called Plain Green and Great Plains. Lawyers say these tribal enterprises “served as fronts to disguise Old Think Finance’s role in the lending model and to ostensibly shield the scheme from liability.”
2013: The FDIC, U.S. Justice Department and the then-newly created Consumer Finance Protection Bureau began investigating online predatory lending practices more aggressively. Plain Green and Great Plains were among the targets.
2014: Old Think Finance created Elevate Credit and transferred an estimated $246 million in assets, software, technology and intellectual property to the new spinoff.
2017: Consumer class actions were filed against Think Finance alleging the company’s business practices with the tribes violated state usury laws as well as the federal Racketeer Influenced and Corrupt Organizations Act.
April 2017: Elevate Credit conducted an IPO and went public on the New York Stock Exchange.
October 2017: Think Finance filed for Chapter 11 bankruptcy in the Northern District of Texas. U.S. Bankruptcy Judge Harlan Hale created the Think Finance Litigation Trust led by former bankruptcy judge Russell Nelms as the trustee. The litigation trust was charged with prosecuting claims that could recover assets to pay the debtor’s debts to creditors.
Although the $33 million from Elevate is far short of the $248 million that the litigation trustee alone originally sought against the Fort Worth fintech spin-off, the class action plaintiff lawyers now argue that the settlement is “an excellent result considering the circumstances of the litigation and the strength of the plaintiffs’ case.”
“The relief provided by the settlement is significant,” Virginia lawyer Kristi Kelly of Kelly Guzzo, which represents many of the plaintiffs, wrote in a brief supporting the agreement. “Most consumers will receive a cash payment. This settlement also helps protect consumers against future predatory lending by preventing Elevate from working with Think Finance entities.”
“Although defendants did not concede liability, this settlement reflects that they felt vulnerable to a potential finding that they could have liability under various theories alleged in these cases,” Kelly wrote. “Plaintiffs were motivated to obtain significant and immediate relief for consumers and avoid substantial litigation risks and uncertainties, especially considering the unique theories of liability and potential collection issues.”
Elevate Credit, in court documents, called the litigation trust’s claims “complete fiction” and argued that the trust lacked standing to seek damages against the Fort Worth fintech operation. Lawyers for Elevate argued that Elevate actually incurred a net loss of $96 million for the three years following the 2014 spinoff, while Think Finance generated $122 million in net income.
Court records show that Think Finance advertised loans over the internet to those desperate for immediate cash but with bad credit. The loans were almost always approved, according to documents.
The loans were funded through financial institutions created by Native American tribes, which claimed sovereign immunity from federal predatory lending laws.
“The tribe was made to look like the lender, but it was [Think Finance] and their affiliates that were the true lenders,” Walker wrote in his complaint against Elevate Credit.
The litigation trustee claims that Think Finance executives spun off Elevate with “the intent to hinder, delay and/or defraud” the creditors by rendering “the assets out of the reach of creditors.”
“In a final spasm borne of hubris and greed, Old Think Finance would siphon off to its shareholders, who were now also the owners of Elevate’s stock, the remaining $59 million in cash Elevate had left behind to contribute to the fiction of the tax-free spin-off,”
Walker wrote to Judge Hale.
“The incestuous and conflicted nature of officers and directors for the companies in the spin-off enabled Old Think Finance to unilaterally dictate the terms of the deal, avoiding third-party due diligence and eliminate standard representations and warranties regarding its massive legacy liabilities,” Walker wrote.
In 2017, three years after the spinoff, Elevate went public on the New York Stock Exchange.
“Officers, directors and shareholders of Old Think Finance received millions in distributions and shares of Elevate’s publicly traded stock,” Walker wrote. “The creditors, however, were left holding an empty bag.”
The litigation trust is represented by Gary Leibowitz and Irving Walker of Cole Shotz’s Baltimore office and James Walker of Cole Shotz’s Dallas office. Elevate Credit is represented by Joel Reese and Pete Marketos of Reese Marketos in Dallas.