News & Resources

EDELMAN, COMBS & LATTURNER SUES PAYDAY LENDER FOR ISSUING "ATTORNEY GENERAL" COLLECTION LETTERS

The Chicago law firm of Edelman, Combs & Latturner has filed a class action lawsuit alleging that a 365% "payday loan" firm, Americash Loans LLC, violated the Fair Debt Collection Practices Act by sending Illinois consumers a letter bearing the emblem of the Attorney General of Illinois and listing the criminal and civil penalties for issuing bad checks.

The lawsuit was filed in federal district court in Chicago. Coleman v. Americash Loans LLC.

"Payday loans" are short term, very high interest rate loans. Americash's loans are typically two weeks in duration and carry annual percentage rates of over 365%. Americash routinely obtains a post-dated check. The loans are typically "rolled over" on multiple occasions.

"Payday loans" are generally made to consumers facing financial emergencies. Once a consumer obtains a "payday loan," he or she will often be unable to pay it off except from the proceeds of additional "payday loans." Often, the "payday loans" force the borrowers into unnecessary bankruptcies.

Edelman, Combs & Latturner concentrates in representation of consumers against lenders, car dealers, debt collectors, and other businesses.

Daniel A. Edelman stated that "The only reason payday lenders obtain postdated checks is to threaten use of the bad check statutes for failure to repay a loan. Threatening criminal prosecution for failure to repay a 365% loan is outrageous. The threats are generally not intended to be carried out. In Illinois, the bad check statute does not even apply to a postdated check which the lender obviously knows is worthless when issued."

EDELMAN, COMBS & LATTURNER SUES COLLECTION LAWYERS FOR ATTEMPTING TO USE BAD CHECK LAWS TO COLLECT "PAYDAY LOANS"

The Chicago law firm of Edelman, Combs & Latturner has filed a class action lawsuit under the Fair Debt Collection Practices Act against a local collection law firm for attempting to use the Illinois bad check laws to collect checks issued in connection with "payday loans". The lawsuit was filed in federal district court in Chicago. Guyton v. Ferleger & Associates, Ltd.

"Payday loans" are short term, very high interest rate loans. The loans are typically two weeks in duration and carry annual percentage rates of 200% to over 2007.5%. The lender generally obtains a post-dated check as a means of repayment. The loans are typically "rolled over" on multiple occasions.

"Payday loans" are generally made to consumers facing financial emergencies. Once a consumer obtains a "payday loan," he or she will often be unable to pay it off except from the proceeds of additional "payday loans." Often, the "payday loans" force the borrowers into unnecessary bankruptcies.

Postdated checks are central to the operations of "payday lenders." If a "payday loan" is not repaid, the lender presents the check for payment. If the check is not paid, the lender threatens or attempts to enforce the bad check statutes against the borrower.

The lawsuit contends that the bad check statutes do not apply to a check issued in connection with a payday loan and that any attempt by a debt collector to use them in that context violates the Fair Debt Collection Practices Act.

In a September 13, 1999 decision, a federal district judge in Springfield, Illinois found that "the Illinois bad check statute, 720 ILCS 5/17-1a does not apply to agreements to hold post-dated checks because the payee knows the check is no good when written." Hartke v. Illinois Payday Loans, Inc., No. 99-3119 (C.D.Ill. Sept. 13, 1999).

The plaintiff is represented by Edelman, Combs & Latturner, a Chicago law firm that concentrates in representation of consumers against lenders, car dealers, debt collectors, and other businesses. Edelman, Combs & Latturner has filed numerous class action lawsuits against "payday lenders" and debt collectors that try to enforce such loans.

Daniel A. Edelman stated that "The only reason payday lenders obtain postdated checks is to threaten use of the bad check statutes for failure to repay the loans. The lenders obviously know that the checks are worthless when issued -- if the borrower had $300 he or she would not be borrowing $300 at 500% interest. The lenders also know that about one out of four of their borrowers will not be able to repay the loans. ⁽¹⁾

To insist that a financially desperate borrower write what is known to be a bad check and then try to enforce the bad check statutes against that borrower when he or she is unable to repay the loan is unconscionable."

Contact:

Daniel A. Edelman
EDELMAN, COMBS & LATTURNER
120 S. LaSalle Street, 18th floor
Chicago, Illinois 60603
(312) 739-4200
(312) 419-0379 (FAX)

ALDERMAN TONI PRECKWINKLE AND ILLINOIS CONSUMER JUSTICE COUNCIL, INC. SUE ILLINOIS DEPARTMENT OF FINANCIAL INSTITUTIONS TO INVALIDATE PAYDAY LOANS

Chicago Alderman Toni Preckwinkle of the Fourth Ward and The Illinois Consumer Justice Council, Inc. today filed suit against the Director of the Illinois Department of Financial Institutions to invalidate a secret Department of Financial Institutions rule that permits payday lenders to accept postdated checks.

The complaint alleges that at some point during the last two years, the Department determined that affirmative authorization by the Department was necessary to permit payday lenders to take post-dated checks, and that such authorization should be granted. However, instead of issuing a rule in compliance with the rulemaking provisions of the Illinois Administrative Procedure Act, so that interested members of the public could comment on the desirability of allowing payday lenders to take post-dated checks, the Department acted secretly. The rule was not published in the Illinois Register and plaintiffs had to file a Freedom of Information Act request in order to get a copy of the document.

"Payday loans" are short term, very high interest rate loans. The loans are typically two weeks in duration and carry annual percentage rates of 200% to over 2007.5%. The lender generally obtains a post-dated check as a means of repayment. The loans are typically "rolled over" on multiple occasions.

"Payday loans" are generally made to consumers facing financial emergencies. Once a consumer obtains a "payday loan," he or she will often be unable to pay it off except from the proceeds of additional "payday loans." Often, the "payday loans" force the borrowers into unnecessary bankruptcies.

Some of the exorbitant "payday loan" rates charged in Illinois are:

American Cash Advance 2007.5%
American Loan Company 521%
Americash 365%
Campus Cash Systems 469%
Cash Store 521%
Chartwell Financial 427%
Checks for Cash Credit Corp. 336%-365%
Check Into Cash 573%
Check-N-Go of Illinois, Inc. 456%-521%
Check Now 521%
Checks-N-Advance 523%
Devon Financial Services 390-520%
E-Z Loan Company 520%
Fast Cash Advance 365%-456%
GFG Loan Company 365%
Halsted Financial Services 500%+
Harrisburg Quick Cash 521.43%
Illinois Title Lenders 216%
Insta Cash, Inc. 385%
Instant Cash Advance (One Iron Ventures) 486%-912%
McKenzie Check Advance 535%-740%
Millenium Title Lenders 521%
Moolah Loan Company 360-520%
National Money Service 780%
Nationwide Budget Finance 521%
Paycheck Advance Express, Inc. 456%-521%
Pay Day Loans, Inc. 521.43%
Payday Check Advance, Inc., d/b/a
Payday Express 521%
Payday Loan Corp. of Illinois 521%
Payday Loan Express, Inc. 365%
Payday Loan Store of Calumet City, Inc. 684%-995%
Payday Loan Store of Illinois, Inc. 695%
The Payday Loan Store -- Oak Lawn 695%
Payday Today Loans LLC 521%
Quik Cash (Community Financial) 521%
Short Term Loans 260%-342%
Speedy Check Cashers 521.43%
Sun Cash 240%-520%
Swansea Quick Cash 521.43%
Tele-Cash 917%

Postdated checks are central to the operations of "payday lenders." If a "payday loan" is not repaid, the lender presents the check for payment. If the check is not paid, the lender threatens or attempts to enforce the bad check statutes against the borrower. The bad check statutes do not apply, but the average payday loan borrower is not aware of this, or unwilling to risk prosecution or a civil penalty action.

A few days ago, the Cook County State's Attorney's Office filed suit against Nationwide Budget Finance for illegal collection practices, including threatening borrowers with arrest under the bad check statutes if loans were not paid within 72 hours.

Alderman Preckwinkle's constituents are targets of "payday lenders." Her Ward is adversely affected by the existence and conduct of "payday loan" businesses.

Plaintiffs contend that the rule is invalid, that payday lenders have no right to take postdated checks, and that all postdated checks taken by payday lenders are illegal and of no effect.

The plaintiffs are represented by Edelman, Combs & Latturner, a Chicago law firm that concentrates in representation of consumers against lenders, car dealers, debt collectors, and other businesses. Edelman, Combs & Latturner has filed numerous class action lawsuits against "payday lenders" and debt collectors that try to enforce such loans.

Plaintiffs' counsel, Daniel A. Edelman, stated that the Department of Financial Institutions has admitted convening secret "task forces" consisting entirely of industry people for the purpose of changing Illinois law, and that this practice and the issuance of secret rules was outrageous. The Department of Financial Institutions took action that affects every citizen of Illinois without allowing for public input, in flagrant disregard of the law.

ILLINOIS CONSUMER JUSTICE COUNCIL, INC.

Copyright 1999 LRP Publications Consumer Financial Services Law Report

September 20, 1999

SECTION: Vol. 3, No. 7

LENGTH: 540 words

HEADLINE: Discrimination not required element of ECOA claim against lender

BODY:

Payday lenders' failure to provide consumers with written rejection notices is actionable under the Equal Credit Opportunity Act regardless of whether the consumers also allege they were discriminated against. Pinkett v. Payday Today Loans LLC, et al., No. 99 C 3332 (N.D. Ill. 8/3/99).

Rodney Pinkett applied for a short-term loan with Payday Today Loans LLC. Payday turned him down.

Alleging Payday refused his loan application without providing him with a written list of his rights or the reasons for its refusal to extend him credit, Pinkett sued Payday under the ECOA.

Payday responded with a motion to dismiss, arguing that the ECOA requires a plaintiff to allege discrimination in order to claim a violation. Pinkett did not allege discrimination, but rather a violation of Section 1692(d)(2). That section reads: "Each applicant against whom adverse action is taken shall be entitled to a statement of reasons for such action from the creditor. A creditor satisfies this obligation by ... providing statements of reasons in writing ... or giving written notification of adverse action which discloses (i) the applicant's right to a statement of reasons within [30] days after receipt by the creditor of a request made within [60] days after such notification, and (ii) the identity of the person or office from which such statement may be obtained."

In deciding the issue of whether a lender's failure to provide a written rejection notice without allegations of discrimination is actionable under the ECOA, Judge James B. Zagel consulted the 5th Circuit U.S. Court of Appeals' decision in Jochum v. Pico Credit Corp. of Westbank, 730 F.2d 1041 (5th Cir. 1984). In Jochum, the 5th Circuit held that the plain language of the act and its statutory purpose, to educate debtors of the weaknesses in their credit history, justified a consumer's ECOA action although he failed to allege the lender discriminated against him when it denied his credit application.

The District Court found Jochum to be persuasive. It held that the text of the ECOA does not specifically require allegations of discrimination. Furthermore, the court opined, "Allowing Pinkett to proceed would help people seeking credit learn why they were denied and would enable them to correct those deficits."

Payday alternatively contended that Pinkett failed to allege punitive damages and, in fact, did not plead actual damages. Judge Zagel acknowledged that the ECOA expressly provides for punitive damages. However, Judge Zagel commented that he may award such damages since Pinkett plead for statutory damages and statutory damages encompass punitive damages. Judge Zagel added that if the defendant understood the act's requirements yet failed to comply with them, Payday's conduct could satisfy the standard for punitive damages. The court ruled that Pinkett's plea for statutory damages was sufficient to satisfy the ECOA. The court denied the defendants' motion.q

Cathleen Combs, Daniel Edelman, James Latturner and Jeffrey Mitchell of Edelman, Combs & Latturner in Chicago, represented the plaintiff. Eugene Kraus and Daniel Konicek of Connelly & Schroeder in Chicago represented the defendants.