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BANKS WHICH HAVE FINANCED

"PAYDAY LOAN" AND "TITLE LOAN" OPERATORS

Based on computer search of current and terminated

Illinois and Indiana UCC filings, December 9, 1999

Payday or title lender Bank

EDELMAN, COMBS & LATTURNER FILES SUITS AGAINST OAK LAWN "FASTRACK" DEMOLITION PROGRAM

The Chicago law firm of Edelman, Combs & Latturner has filed two lawsuits against the "fastrack" administrative demolition program of the Village of Oak Lawn. The cases are Esther Kennedy v. Village of Oak Lawn, 99 C 7917, and Richard and Laura Ostergren v. Village of Oak Lawn, 99 C 7847. Both were filed in the U.S. District Court for the Northern District of Illinois.

In the Ostergren case, the plaintiffs were in the process of renovating the properties and had been assured that the buildings would not be demolished. While plaintiffs were actually meeting with Village officials to discuss the renovation, the buildings were torn down by administrative order, without any judicial proceedings.

The "fastrack" program provides for summary demolition of allegedly blighted properties by administrative order, without adequate notice or any court proceedings. The suits allege that the program violates the due process rights of the property owners subjected to it. Cathleen M. Combs, attorney for the plaintiffs, described such programs as unnecessary and outrageous.

The Oak Lawn actions are similar to the earlier lawsuit filed by Edelman, Combs & Latturner against the Chicago "fastrack" demolition program. McKenzie v. City of Chicago, 97 C 284.

EDELMAN, COMBS & LATTURNER SUES FOUR RENT-TO-OWN COMPANIES AND THEIR COLLECTION LAWYER 

The Chicago law firm of Edelman, Combs & Latturner has filed a class action lawsuit against four rent-to-own companies and their collection lawyer, alleging illegal collection practices. The rent-to-own companies are (i) Rent-A-Center, Inc.; (ii) Renters Choice (now merged into Rent-A-Center, Inc.), (iii) Rental Management Co., d/b/a Aaron's Rental Purchase, and (iv) Rent-Way, Inc. They rent furniture and related items to working-class customers at exorbitant rates, with an option to purchase. The collection lawyer is Kevin Hermanek. The suit was filed by rent-to-own customer Theresa Thomas.

The rent-to-own companies, represented by Hermanek, obtained hundreds of no-prior-notice replevin (seizure of property) orders from the Circuit Court of Cook County, by presenting standard form documents claiming that the renters were about to abscond with or sell or conceal the rented furniture, and that the furniture was perishable.

Illinois law forbids the issuance of no-notice seizure orders except in very limited circumstances, one of which is if the owner of property can establish to the satisfaction of the court that the renter is about to leave the state with its property, or to conceal or sell it. Another is if the property is perishable. If their court papers are to be believed, the four rent-to-own companies did not have any customers who fell behind in their payments but were not about to abscond with the furniture, and their furniture was so likely to deteriorate as to be "perishable."

As soon as the orders were issued, Cook County Sheriff's officers, accompanied by representatives of the rent-to-own company, would seize the rented furniture from the customer. If the customer was not home, they would break in with the aid of a locksmith and seize the rented furniture. At least, they were supposed to seize the rented furniture. In Ms. Thomas' case, they seized the wrong property. Avoiding such mistakes is one of the reasons that the law requires prior notice and hearing in front of a judge before a seizure order can be issued.

The lawsuit alleges that the presentation of hundreds of complaints alleging that consumers have committed fraud, and the resulting entry and execution of no-notice replevin orders, violated the civil rights of each rental customer. The complaint also alleges violation of the Fair Debt Collection Practices Act, a federal statute prohibiting unfair debt collection practices.

Plaintiff's attorney Daniel A. Edelman said that "This is one of the most egregious collection tactics I have seen. Bogus reasons were presented to courts on hundreds of occasions to get authority for strong-arm tactics that are reserved for the most extreme and unusual circumstances."

The case was filed in federal district court in Chicago on December 20, 1999. Thomas v. Hermanek, 99 C 8267.

Edelman, Combs & Latturner concentrates in representation of consumers against lenders, car dealers, debt collectors, and other businesses. They also bring civil rights and discrimination cases involving fair housing and other economic issues.

Copyright 1999 Law Bulletin Publishing Company

Chicago Daily Law Bulletin

December 21, 1999, Tuesday

SECTION: Pg. 3

LENGTH: 781 words

HEADLINE: Payday lender to end operations here

BYLINE: MARTHA NEIL; Law Bulletin staff writer

BODY:

A unit of the Cook County state's attorney's office established earlier this year to combat consumer fraud has just won its first big victory.

A settlement reached Tuesday with Nationwide Budget Finance Inc. requires the St. Louis-based payday loan company to shutter its 26 shops in Illinois and pay $ 350,000 each to the office of State's Attorney Richard A. Devine and the Illinois Department of Financial Institutions.

Four identified victims of the company will get $ 500 each in settlement of a Cook County Circuit Court suit filed by Devine's office.

And further redress will be provided to Nationwide borrowers under a proposed six-figure settlement of two private federal class-action cases, according to Mark N. Pera and Thomas Rieck. The two assistant state's attorneys are part of a three-lawyer team in the new Major Actions Unit, which is part of the Public Interest Bureau in Devine's office.

I think it's safe to say that this is one of the biggest settlements that's come out of the office civilly," Pera said of the money to be paid by Nationwide.

The case arose from a postcard forwarded to Devine by a Nationwide borrower last spring that was in essence threatening criminal prosecution" for passing a bad check, he and Rieck said.

Nationwide and other companies that provide short-term loans, commonly referred to as payday loans, typically require a borrower to write a post-dated personal check and present a pay stub as proof of employment. The borrower then gets cash in return. After he or she gets the next paycheck, the personal check is then cashed by the lender -- or the borrower may be given an opportunity to roll over" the loan or borrow additional funds until the next paycheck arrives.

Thus, although the threat of prosecution was based on bad" checks that could not be cashed, the postcard sent by Nationwide did not a represent a good-faith action, Rieck and Pera said, because a payday lender knows when it accepts a post-dated check that it is not backed by current funds in a borrower's account.

The complaint in the government's suit also charged Nationwide with multiple violations of the Illinois Consumer Fraud Act. It contended that the company had harassed borrowers and their references, improperly used wage assignment forms, and threatened to pursue civil suits and criminal charges when in fact it had no intention of taking such action.

The Department of Financial Institutions was an active participant in the suit because Nationwide's conduct violated the Consumer Installment Loan Act and DFI regulations based on that statute, the two assistant state's attorneys said.

When annualized, the interest rate on a payday loan can exceed 500 percent. For example, one woman described in the government's complaint in the Nationwide case borrowed a total of $ 3,825 by adding to her original loan every two weeks over a period of about seven months, according to Rieck and Pera. She paid $ 735 in interest, they said.

While some states have laws that prohibit payday lending, Illinois is not among them, and there is no usury law limiting interest that a business can charge here, the two assistant state's attorneys said.

Devine's office agreed to settle its suit, People, et al. v. Nationwide Budget Finance Inc., No 99 CH 12992, only after it was established that consumers would be adequately compensated in two related federal class actions brought by Edelman, Combs & Latturner, according to Rieck and Pera.

The $ 350,000 being paid to Devine's office by Nationwide will be used to create a new Major Action Investigation and Enforcement Fund. It will pay for more investigations like the one against Nationwide, as well as prosecutions and consumer education, Rieck said.

Under the proposed settlement of the private class actions against Nationwide, some borrowers will receive an unspecified amount of cash; some will have charges erased; and those against whom adverse credit reports were made by Nationwide will have their records corrected to reflect disputed charges.

The class actions, which were brought in the Northern District of Illinois by Daniel A. Edelman of Edelman, Combs & Latturner, are Mitchum v. Nationwide Budget Finance Inc., No. 99 C 1862, and Garrett v. Nationwide Budget Finance Inc., No. 99 C 5712.

Nationwide was represented both in the Cook County case and in the private class actions by Eugene E. Murphy Jr. of Quinlan & Crisham Ltd. and Charles L. Glick of Hedlund, Hanley & John.

Murphy had not returned a phone message at press time Tuesday and Glick was on vacation and could not be reached for comment.

Copyright 1999 Law Bulletin Publishing Company Chicago Daily Law Bulletin

December 23, 1999, Thursday

SECTION: Pg. 3

LENGTH: 990 words

HEADLINE:Debt collection litigation is a growth industry, lawyers say

BYLINE: MARTHA NEIL; Law Bulletin staff writer

BODY:

In a suit that defense lawyers say is representative of a growing trend, a local attorney has been named as a defendant in a complaint about alleged illegal collection practices.

A class action filed this week in the U.S. District Court for the Northern District of Illinois by Daniel A. Edelman of Edelman, Combs & Latturner contends four rent-to-own furniture companies, represented by their counsel, Kevin J. Hermanek, obtained hundreds of Cook County Circuit Court no-prior-notice replevin orders under questionable circumstances.

The suit alleges that hundreds of complaints charging fraud by rent-to-own customers were filed under questionable circumstances to obtain ex parte replevin orders allowing seizure of rented furniture. The orders and the resulting entry into customers' homes to execute the orders violated both customers' civil rights and the federal Fair Debt Collection Practices Act, the complaint contends.

It seeks compensatory and punitive damages in an undetermined amount, plus attorney fees.

Hermanek said he has been advised by counsel not to comment on the allegations.

But lawsuits filed against lawyers alleging violations of the statute have become more and more common in the last three or four years, following a U.S. Supreme Court decision that interpreted the term debt collector" in the Fair Debt Collection Practices Act to include attorneys, says Thomas P. McGarry. A partner of Hinshaw & Culbertson who handles a lot of attorney malpractice matters, he is not involved with the Hermanek case.

In fact, one of his partners at the 400-attorney firm known for its insurance defense work now focuses his practice on attorneys named as defendants in suits brought under the statute, and represents a very large clientele of debt collectors and lawyers who are collection lawyers," McGarry says.

Because the Fair Debt Collection Practices Act creates a fairly lucrativeindustry for lawyers who sue debt collectors, particularly in federal court actions, there's a lot of activity like this. If you're doing collection work, it's not that remarkable that someone might make a claim against you under the Fair Debt Collection Practices Act."

Strictly enforced, particularly in the 7th Circuit, this statutory scheme is so onerous and so difficult that it is a trap for the unwary," McGarry continued. The so-called pure-heart-and-empty-head defense doesn't apply. It's a very strict statutory scheme, and I think in some ways it's unfairly targeted at lawyers."

Typical scenarios that get collection lawyers in trouble under the statute include inadequate supervision of staff and assuming, as an out-of-state lawyer, that you know the rules, not realizing that the 7th Circuit takes a very strict approach to the statute, McGarry said.

However, the suit against Hermanek is highly unusual in also alleging civil rights violations under 42 U.S.C. sec1983, based on orders granted in Cook County Circuit Court, both Edelman and McGarry agreed.

The ex parte orders at issue in the class action against Hermanek were obtained by presenting standard-form orders containing bogus recitals," according to the complaint. The orders allegedly claimed renters were trying to abscond with, sell or conceal their rented furniture and that it was perishable.

Edelman said Illinois law has forbidden no-notice seizure orders since the 1970s, except in very limited circumstances. These include cases in which the owner of the property can establish that the renter is about to leave the state with it, conceal it or sell it, or that the property is perishable.

However, such circumstances did not apply to the replevin orders concerned in the class action, where the debtors simply were in arrears, not seeking to abscond with the furniture, according to Edelman.

His complaint alleges that the defendants violated 42 U.S.C. sec1983 through the routine use of no-notice replevin proceedings by defendants, justified by bogus recitals in form orders presented by Hermanek" and his law firm. This constituted a due-process violation under the 14th Amendment of the U.S. Constitution, the complaint contends.

Edelman described the defendants' collection efforts as one of most egregious collection tactics I have seen. Bogus reasons were presented to the courts on hundreds of occasions to get authority for strong-arm tactics that are reserved for the most extreme and unusual circumstances."

The ex parte replevin orders that he has seen were approved by Circuit Judge Glynn J. Elliott Jr., Edelman said. It is his understanding, though, that such orders are no longer being granted.

Attorneys representing the defendant furniture rental companies said they haven't done anything wrong and intend to defend the class action vigorously.

We have not had a chance to carefully review the complaint, but we do know that our activities in Illinois are in compliance with the law," said Bradley W. Denison. He is senior vice president and general counsel for defendant Rent-A-Center Inc., based in Plano, Texas.

We intend to vigorously defend this case," Denison added.

Eugene J. Kelley Jr. of Arnstein & Lehr, who is representing Rent-Way Inc., based in Erie, Pa., said his client, too, has done nothing wrong.

I also question whether Rent-Way belongs in this case, as it's currentlyconstituted, because the only named plaintiff is not a Rent-Way customer," Kelley continued.

Neal T. Goldstein of Much, Shelist, Freed, Denenberg, Ament & Rubenstein P.C. represents another corporate defendant, Rental Management Co., doing business as Aaron's Rental Purchase in Cicero. He declined to comment.

The fourth corporate defendant, Renters Choice, has merged into Rent-A-Center, according to Edelman.

Thomas v. Hermanek, et al., No. 99 C 8267.

Copyright 1999 Law Bulletin Publishing Company Chicago Daily Law Bulletin

December 22, 1999, Wednesday

SECTION: Pg. 1

LENGTH: 958 words

HEADLINE: Judges can't say what's confusing to most debtors: court

BYLINE: PATRICIA MANSON; Law Bulletin staff writer

BODY:

Federal judges are different from other people -- at least when it comes to interpreting dunning letters sent out by collection agencies.

That's the conclusion a federal appeals court panel reached Tuesday in determining that a woman should have another chance to show that a debt-collection letter she received was confusing to the unsophisticated consumer.

In its opinion, the panel of the 7th U.S. Circuit Court of Appeals held that a federal magistrate judge shouldn't have dismissed Margaret Walker's lawsuit against National Recovery Inc.

The suit claimed National Recovery violated the Fair Debt Collection Practices Act, 15 U.S.C. sec1692, with a letter seeking payment of a past-due debt Walker allegedly owed.

U.S. Magistrate Judge Morton Denlow dismissed the action under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim on which relief may be granted.

The 7th Circuit panel reversed Denlow, saying that whether a debt-collection letter creates confusion in the debtor to whom it is directed is a question of fact.

And that question should be explored at trial with the aid of testimony and consumer surveys -- not by asking a federal judge whether he thinks the letter meets the standards set by the Fair Debt Collection Practices Act, the panel said.

Citing Johnson v. Revenue Management Corp., 169 F.3d 1057 (7th Cir. 1999), the panel said dismissing a complaint against a collection agency under Rule 12(b)(6) is particularly inappropriate -- not only because this notice is confusing' states a claim on which relief may be granted, but also because district judges are not good proxies for the unsophisticated consumers' whose interests the statute protects."

The panel remanded the case to Denlow for further action.

Margaret Walker v. National Recovery Inc., No. 99-2119.

On Wednesday, an attorney for National Recovery objected to the suggestion that federal jurists are too smart to decide whether a particular dunning letter is confusing to the typical consumer.

Plain English is plain English," said the attorney, Stephen R. Swofford of Chicago. You don't need a survey to know what plain English is."

And Swofford said requiring collection agencies to conduct surveys to show that their dunning letters clearly explain a debtor's legal rights would run up the cost of obtaining the repayment of consumer debts.

Saying that Walker's case raised an important, recurring issue" concerning Rule 12(b)(6), Swofford said National Recovery would seek a rehearing before the 7th Circuit or petition the U.S. Supreme Court for review.

The issue of the application of Rule 12(b)(6) to actions brought under the Fair Debt Collection Practices Act already is pending before the full 7th Circuit, according to Swofford.

He said the appellate court this week granted a petition for rehearing and vacated the decision a different panel returned Oct. 14 in a case raising the same issues addressed in Walker's case.

But in contrast to the Walker panel, the panel ruling in Jewel Marshall-Mosby v. Corporate Receivables Inc., No. 99-1217, held that courts may determine as a matter of law whether a dunning letter is confusing to the unsophisticated recipient.

The panel also held that dismissal under Rule 12(b)(6) is proper if a court concludes that the letter cannot reasonably be judged confusing."

Two members of the panel that issued the ruling in Marshall-Mosby were Judges Michael S. Kanne and Terence T. Evans.

Kanne and Evans, as well as Judge Daniel A. Manion, made up the minority of 7th Circuit judges who voted to hear Walker's case en banc. Judge Ann Claire Williams did not take part in that decision.

In Walker's case, she claimed National Recovery violated the Fair Debt Collection Practices Act with a letter saying that a debt she allegedly owed had been placed with the company for immediate collection."

The act requires debt collectors to inform debtors that they have 30 days to challenge the validity of a debt and that the collector will obtain verification of the debt from the creditor at the request of the debtor.

In its opinion, the 7th Circuit panel acknowledged that National Recovery's letter to Walker did say she had 30 days to notify the company in writing that she disputed the validity of all or part of the debt.

And the letter did not demand immediate payment" or an immediate call" from Walker, according to the panel.

But National Recovery's letter also did not endeavor to explain how collection could be immediate' unless payment were made immediately," the panel said.

To an unsophisticated person, the panel said, the combination of a demand for prompt action with a notice that the recipient has 30 days to seek verification may produce befuddlement."

And whether a particular debt-collection letter actually produces such a mental state in the unsophisticated consumer is a question of fact, not of law or logic," the panel said.

The conclusion that Walker's complaint states a claim on which relief may begranted and therefore may not be dismissed under Rule 12(b)(6) follows directly from the proposition that confusion' is a matter of fact rather than law," Judge Frank H. Easterbrook wrote for the panel. It may be an ultimate' issue in the case, and mixed' with a legal dispute about how confusing is too confusing, but this does not make the subject less a matter of fact."

Judges Kenneth F. Ripple and Diane P. Wood joined in the opinion.

Walker was represented before the 7th Circuit by Chicago attorneys Daniel A. Edelman and Ignacio D. Maramba Jr.

Copyright 1999 Law Bulletin Publishing Company Chicago Daily Law Bulletin

December 27, 1999, Monday

SECTION: Pg. 1

LENGTH: 1106 words

HEADLINE: Appeals court bounces suit over payday loan documents

BYLINE: PATRICIA MANSON; Law Bulletin staff writer

BODY:

Saying the Truth in Lending Act is based on the premise that one size fits all," a federal appeals court panel has concluded it's the hypothetical reasonable person" -- not an individual borrower -- who determines whether certain terms in a loan agreement are conspicuous enough to comply with the statute.

In an opinion Thursday, a panel of the 7th U.S. Circuit Court of Appeals held that whether the finance charge and annual percentage rate stand out over most other loan terms is a question of law, not fact.

Under that approach to examining loan agreements, the panel said, a form complies or it doesn't" -- regardless of a particular person's perception of the form.

The panel rejected arguments that a loan agreement should be considered from the borrower's point of view when determining whether it violates 12 C.F.R. sec226.17(a)(2).

That regulation -- which is among those implementing the Truth in Lending Act, 15 U.S.C. sec1601 -- calls for the finance charge and percentage rate to be more conspicuous on a loan form than any other term but the creditor's identity.

The panel said using a subjective approach to determine a loan agreement's validity could lead to inconsistent verdicts, with the identical agreement being given the go-ahead in some cases and being found to violate the law in others.

And this uncertainty over the validity of loan forms would defeat the purpose of 12 C.F.R. sec226.17(a)(2), according to the panel.

No matter what a lender did, a borrower could say that to his eyes the combination of color, typeface, spacing, size, style, underlining, capitalization, border, and placement made one feature of the agreement stand out relative to the mandatory disclosures, or emphasized one disclosure over another," Judge Frank H. Easterbrook wrote for the panel.

In that situation, the panel continued, the lender would not be the party to ultimately suffer.

Uncertainty would redound to borrowers' detriment, for in competition lenders must recover their costs, and an unavoidable cost created by legal dubiety would be passed on to borrowers in the form of higher interest rates," the panel said.

The panel affirmed a trial judge's decision dismissing two lawsuits challenging the validity of loan agreements the plaintiffs had entered with Check-N-Go of Illinois Inc.

Check-N-Go provides individuals with short-term, high-interest loans known as payday loans. Companies that make such loans typically require the borrower to write a personal check to be cashed by the lender after the borrower gets his next paycheck.

In their suits, the plaintiffs had contended that a circle drawn around the due date on a loan agreement violated the rule that the finance charge and annual percentage rate be more conspicuous than most of the other loan terms.

U.S. District Judge Harry D. Leinenweber dismissed both complaints under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim on which relief may be granted.

On Thursday, the 7th Circuit panel said Leinenweber made the right decision for the wrong reason.

Citing Walker v. National Recovery Inc., No. 99-2119 (7th Cir. Dec. 21, 1999), the panel said a claim that a particular disclosure is more conspicuous' than the finance charge or annual percentage rate states a claim on which relief may be granted."

In that situation, according to the panel, a judge should grant judgment on the pleadings under Rule 12(c) or convert the motion to dismiss to a motion for summary judgment and grant that motion.

Neither step is appropriate if there are material factual disputes, but conspicuousness' for purposes of section 226.17(a)(2) is a matter of law rather than fact, so decision on the papers was proper, even though the district judge cited the wrong rule," the panel said.

The panel said Leinenweber's decision was correct because the finance charge and annual percentage rate need not be the most prominent words on the page; they need only be the most conspicuous of the disclosures.' "

And the panel said that an isolated circle or mark" on a model loan form recommended by the Federal Reserve does not create liability for the lender.

Perhaps a determined effort to embellish the form, as by using a yellowmarker to highlight figures other than the annual percentage rate and finance charge, would make the highlighted figures more conspicuous' despite the bolder type and boxes for the disclosures the Federal Reserve wants emphasized," the panel said. But a single circle around the due date -- the piece of information most vital to the consumer once the loan has been made, for failure to repay on time can lead to penalties -- does not turn a model form into a violation of law."

Joining in the opinion written by Easterbrook were Judges William J. Bauer and Michael S. Kanne.

Derrick D. Smith, et al. v. Check-N-Go of Illinois Inc., et al., No. 99-2666, and Sandra Brown, et al. v. Check-N-Go of Illinois Inc., No. 99-2667.

Thursday's opinion was issued about two months after another 7th Circuit panel considered issues stemming from payday loans.

In an opinion Oct. 27, that panel held that a lender does not violate the Truth in Lending Act by referring to the post-dated check a borrower posts with the lender as security."

The panel also held that by stapling a receipt to a loan agreement and obscuring some of the agreement's terms, a lender might violate a requirement that all disclosures be made clearly and conspicuously."

Smith v. Cash Store Management Inc., No. 99-2472.

In Thursday's opinion in the two Check-N-Go appeals, the 7th Circuit panel said appeals in eight additional payday-loan cases were still pending before the appellate court.

The panel noted that the pending cases -- as well as four the 7th Circuit already has decided this year -- were filed by a single law firm Edelman & Combs, on behalf of a stable of clients."

For reasons that we have been unable to discover, the Northern District of Illinois, in which these suits were filed, did not consolidate them before a single judge, even though the issues and parties have substantial overlap," the panel said. Our court can do better."

Citing Operating Procedure 6(b), the panel said it would handle all future appeals involving payday loans and would issue orders in the eight pending cases seeking the parties' views on the question whether these appeals should be decided summarily on the authority of Smith v. Cash Store Management and this opinion."