Loyola Consumer Law Review Volume 11 | Issue 3 Article 4 1999 Payday Loans: Big Interest Rates and Lile Regulation Daniel A. Edelman Partner, Edelman & Combs, Chicago, IL. Follow this and additional works at: hp://lawecommons.luc.edu/lclr Part of the Consumer Protection Law Commons is Feature Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola Consumer Law Review by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. Recommended Citation Daniel A. Edelman Payday Loans: Big Interest Rates and Lile Regulation, 11 Loy. Consumer L. Rev. 174 (1999). Available at: hp://lawecommons.luc.edu/lclr/vol11/iss3/4
Transcript
Loyola Consumer Law Review
Volume 11 | Issue 3 Article 4
1999
Payday Loans: Big Interest Rates and LittleRegulationDaniel A. EdelmanPartner, Edelman & Combs, Chicago, IL.
Follow this and additional works at: http://lawecommons.luc.edu/lclr
Part of the Consumer Protection Law Commons
This Feature Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola Consumer Law Reviewby an authorized administrator of LAW eCommons. For more information, please contact [email protected].
Recommended CitationDaniel A. Edelman Payday Loans: Big Interest Rates and Little Regulation, 11 Loy. Consumer L. Rev. 174 (1999).Available at: http://lawecommons.luc.edu/lclr/vol11/iss3/4
Payday Loans: Big Interest Rates and LittleRegulation
by Daniel A. Edelman
I. INTRODUCTION
"Payday loans" are short term,very high interest rate loans. The loansare typically two weeks in durationand carry annual percentage rates("APRs") ranging from 200% to morethan 2000%. At the end of the two-week term, the customer has the optionof continuing the loan for an additionalperiod by paying the interest. Theloans are typically "rolled over" onmultiple occasions. According toindustry analysts, the averagecustomer obtains eleven loans peryear.' However, many consumersgreatly exceed the average. Anothersimilar loan, a "title loan," is made onthe security of automobile titles,generally for one-month terms.
Payday loans are generally madeto consumers facing financialemergencies. The "payday lender"does not run credit checks and thisfeature makes these loans attractive tothose who have, or think they have,bad credit. Typically the loans aremade to anyone who brings in a photoID, a bank account statement, and apay stub.4 Once a consumer obtains a
Daniel A. Edelman is a partner inthe Chicago law firm of Edelman&Combs, which represents consumersin class and individual actions.Specifically, Edelman & Combs hasrepresented several borrowers in anumber of cases against payday loanand title loan companies.
payday loan, he or she will often beunable to pay it off, except from theproceeds of additional payday loans."Instead of using a loan once in anemergency, borrowers tend to get on atreadmill of repeated loans they can'tget off .... It's almost a pattern .... Itreally is people who are desperate formoney."5 Frequently, the payday loanstore is the last stop prior tobankruptcy court.6
Additionally, the number ofpayday loan establishments isincreasing exponentially. There wereno payday loan establishments inIllinois until 1997; now there areseveral hundred.7 There are at least2,000 establishments in the UnitedStates that do nothing but makepayday loans; many of the 6,000 check-cashing outlets also offer such loans.8
1740 Loyola Consumer Law Review Volume 11, number 3
Many of the payday loanestablishments are part of nationalchains. For example, Check Into Cashopened its first office in 1993 and nowhas 320 outlets, with $21.4 million inrevenue during 1997 and as muchagain during the first six months of1998; it is planning to go public.9
Another payday lender, AdvanceAmerica Cash Centers, has nearly 500outlets.10 Ace Cash Express, a chain withover 800 outlets, collected $10.1 millionin payday loan fees during fiscal 1998.11
One owner of a payday loanestablishment attributed the suddengrowth of cash advances to a cash-strapped, lower middle class. Moreand more people earning $25,000 to$30,000 with two or three children, acar payment and insurance payment,are living from payday to payday.12
One informal survey indicated that theaverage customer is a white femaleearning between $14,500 and $20,000per year, 28 years old, and employed inthe service or healthcare industry. 3 Thesecond largest group of borrowers isAfrican American.1 4
Typical payday loan and title loanrates in the Chicago area range from101% to 912% depending on the lender;however, rates as high as 1875% are notunheard of;15 and an Indiana lenderwas charging 2,400%.16 The widedisparity among rates stronglysuggests that there is little or no ratecompetition between payday lenders,and that the high rates are not cost-justified.
Generally, companies that makepayday loans do not advertise the
1999
annual percentage rates. Instead, theyadvertise that the loan cost a specificdollar amount. The consumer does notsee the annual percentage rate until heor she is presented with the check. 7 Asthis article will explain, such behaviorviolates the credit advertisingprovision of the Truth in Lending Act.
II. LEGAL CHALLENGES TOPAYDAY LOANS AND TITLELOANS
A. Usury
In those states that still retainusury limits, payday and title lendershave been attempting to evade the lawby claiming that they are engaging in"deferred deposit" transactions, notmaking loans. Such efforts have beensuccessfully challenged.18 In theabsence of a specific exemption, thecharges for a payday loan or title loanconstitute interest for usury purposes.1 9
In Hamilton v. York, the district courtreviewed the substance of thetransactions, rather than the form andruled that "the transactions werenothing more than interest bearingloans."2 ° Specifically, the store was notcashing the plaintiff's check, "butrather, it was giving them short-termloans that could be deferred for anadditional 10% per week."21
According to a November 1998survey by the Consumer Federation ofAmerica, eighteen states or territoriesset their small-loan rate low enough tomake the payday loan business
Loyola Consumer Law Review * 175
unprofitable. 22 Nineteen states and theDistrict of Columbia allow the practicebut regulate the terms of the loans.23
Thirteen states, including Illinois, haveno limits on interest or terms of paydayloans.
24
B. Unconscionability
An unconscionable bargain is "onewhich no man in his senses, not underdelusion, would make, one the onehand, and which no fair and honestman would accept on the other. ' 25 "acontract may be treated asunconscionable when it is improvident,oppressive, or totally onesided."26
Illinois courts "will relieve againsthand and unconscionable contractswhich have been procured by takingadvantage of the condition,circumstances or necessity of the otherparties. 27
Other courts outside Illinois havestated that a contract is unconscionablewhere "the terms are so extreme as toappear unconscionable according tothe mores and business practices of thetime and place, ' 28 or where the termsare "overly harsh." 29 Courts finedunconscionalbility in circumstanceswhere one party has taken advantageof another's condition, circumstances,or necessity to obtain a grosslyexcessive priceY° Illinois, however,does not require that a transaction beboth procedurally and substantivelyunconscionable. For example, oneappellate court in Illinois noted that,"[u]nconscionablity can be eitherprocedural or substantive or a
combination of both.'Courts have found extraordinary
interest rates to be unconscionable. InCarboni v. Arrospide, a 200% interest ratefor a secured loan was held to beunconscionable.32 Other courts havealso sustained complaints alleging thatsimilar annual percentage rates wereunconscionable.33
Other specific features of paydayloans and title loans that lead to theconclusion that they are unconscionableinclude: (1) the percentage ofborrowers who default, which may beas high as 20-25%, 34 and the inability ofthe consumer to benefit from atransaction; 35 (2) an extremely highreturn on investment; 36 and, (3) failureto comply with disclosurerequirements and other legalprotections afforded borrowers.37
C. Truth In Lending
Although the payday loanindustry often attempts to characterizeits transactions as something otherthan loans, any payday loan is aconsumer credit transaction subject tothe Truth in Lending Act andRegulation Z.38 Violations of Truth inLending requirements that have beenalleged in connection with paydayloans include:
1) complete failure to provide anydisclosures;
39
2) exclusion from the financecharge of fees and charges whichmay not be excluded;4
3) failure to make the financecharge and annual percentage rate
176e Loyola Consumer Law Review Volume 11, number 3
more conspicuous; 41
4) failure to properly identifycollateral;
42
5) requiring the borrower to postcash with (or give part of the loanproceeds back to) the lender as"cash collateral," thereby reducingthe effective amount borrowed; 43
6) in states with limitations on theamount of a payday loan, splitting atransaction into two loans.'In addition, many payday lenders
violate the credit advertisingprovisions of Truth in Lending, whichare not privately actionable. Thelenders advertise that a loan of aparticular dollar amount includes acertain per week charge, withoutstating the annual percentage rate. 5
This violates 15 U.S.C. § 1664." The cityof Chicago has filed an administrativecomplaint against one payday lenderalleging such violations.47
D. Illegal Collection Practices
Illegal collection practices areoften used to enforce payday loans.These include threatening criminalprosecution or civil penalties underbad check statutes.i Such threats existin Illinois, even though the Illinois badcheck statutes do not apply to a checkissues in connection with a paydayloan.49 Another illegal collectionpractices involve unlawful wageassignments. Such wage assignmentsare not disclosed in the Truth inLending statement. ° Others do notprovide that they are revocable at thewill of the borrower, as required by the
FTC Credit Practices regulation.1
Specifically, some of the forms usedviolate the Illinois Wage AssignmentAct.
52
Likewise, threatening to refer debts tooutside attorneys when no outsideattorney is involved is yet anotherillegal collection practice.53
PROPOSED STATUTEREGULATING PAYDAY LOANS
"AN ACT to create the Short TermLoan Act"
Section 1. Short Title.
This Act may be known as the ShortTerm Loan Act.
Section 5. Definitions.
As used in this Act, unless the contextrequires otherwise:
"Amount financed" means the amountfinanced calculated in accordance withthe Truth in Lending Act, 15 U.S.C. §1601 et seq., and Federal Reserve BoardRegulation Z, 12 C.F.R. part 226, asfrom time to time amended.
"Annual percentage rate" means theannual percentage rate calculated inaccordance with the Truth in LendingAct, 15 U.S.C. § 1601 et seq., andFederal Reserve Board Regulation Z, 12C.F.R. part 226, as from time to timeamended.
"Check" means any personal check,
Loyola Consumer Law Review e 1771999
draft, money order, personal moneyorder, traveler's check, other demandinstrument for the transmission orpayment of money.
"Consumer credit" has the samemeaning as under the Truth in LendingAct, 15 U.S.C. § 1601 et seq., andFederal Reserve Board Regulation Z, 12C.F.R. part 226, as from time to timeamended.
"Department" means the departmentof Financial Institutions.
"Director" means the Director ofFinancial Institutions.
"Finance charge" means the financecharge calculated in accordance withthe Truth in Lending Act, 15 U.S.C. §1601 et seq., and Federal Reserve BoardRegulation Z, 12 C.F.R. part 226, asfrom time to time amended.
"Maker" means any person who writesa check and upon whose personalaccount the check is drawn.
"Licensee" means a person dulylicensed by the Department to engagein the short term loan businesspursuant to the provisions of this Act.
"Payor financial institution" means afinancial institution upon which acheck used in a short term landtransaction is drawn.
"Renewal" means the termination ofan existing short term loan agreement
solely by the payment of fees then duethe licensee and the substitution of anew check drawn by the makerpursuant to a new short term loanagreement.
"Service fee" or "fee" means the feeauthorized in Section 35 for thedeferral of the presentment of a checkpursuant to this Act.
"Short term loan transaction" means aconsumer credit transaction made for aperiod of time not exceeding 31 days,and includes any transaction wherebya personal check is cashed by a personlicensed under this Act and, by mutualagreement between the licensee andthe maker of the check, its presentmentor negotiation is deferred.
Section 10. Authority to transactbusiness.
Except as provided in section 15, noperson shall engage in the business ofmaking short term loan transactionsfor a fee or other consideration withouthaving first obtained a license from theDepartment. However, any personauthorized (under current licensingprovisions for small lenders in Illinois)may engage in the business ofaccepting short term loan transactionsuntil the Department has acted uponhis or her application for a licenseunder this Act, provided theapplication is filed within 60 days ofthe effective date of this Act.
Section 15. Application.
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This Act does not apply to a personprincipally engaged in the bona fideretail sale of goods or services whodoes not hold himself or herself out asbeing in the short term loan businesswho, either as an incident to orindependently of a retail sale orservice, from time to time casheschecks, drafts or money orders withouta fee or other consideration.
Section 20. License.
An application for a license pursuantto this Act shall be made in compliancewith and governed in all respects bythe provisions of this Act.Notwithstanding any other law to thecontrary, the business of short termloan services conducted in accordancewith this Act shall not be subject to orcontrolled by any other statutegoverning the imposition of interest,fees, or loan charges.
Section 25. Records, annual reports.
(a) A licensee shall maintain records inconformity with generally acceptedaccounting principles and practices in amanner that will enable theDepartment to determine (i) determinewhether the licensee id complying withthe provisions of this Act; and (ii)report on the licensee's return on anannual basis. The record keepingsystem of a licensee shall be sufficientif he or she make the requiredinformation reasonably available. Therecords need not be kept in the place of
business where short term loanagreements are made if theDepartment is given free access to therecords wherever they are located. Therecord pertaining to any short termloan transaction need not be preservedfor more than 3 years after making thefinal entry relating to the transaction.
(b) On or before April 15 of each year, alicensee shall file with the Departmenta composite annual report in the formprescribed by the Department relatingto all snort term loan transactionsentered into by him or her. TheDepartment shall consult withcomparable officials in another state forthe purposes of making the kinds ofinformation required in annual reportsuniform among the states. Informationcontained in annual reports shall beconfidential and my only be publishedin composite form.
(c) On or before July I of each year, theDepartment shall publish the averagereturn on equity of all licensees underthis Act.
Section 30. Examinations andInvestigations
(a) The Department shall examineperiodically, at intervals it deemsappropriate, the business and recordsof every licensee. For these purposes,the Department shall have free andreasonable access to the offices, place ifbusiness, and records of the licensee.
(b) a licensee, at his or her option, shall
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make them available to theDepartment at a convenient locationwithin this State, or pay the reasonableand necessary expenses for therepresentative designated by theDepartment, which may includecomparable officials of the State inwhich the records are located, toinspect them on its behalf.
(c) for the purposes of this Section, theDepartment may administer oaths oraffirmations and, upon its own motionor upon the request of any party, maysubpoena witnesses, compel theirattendance, adduce evidence, andrequire the production of any matterthat is relevant to the investigation,including the existence, description,nature, custody, condition, and locationof any books, documents, or othertangible things and the identity andlocation of persons having knowledgeof relevant facts or any other matterreasonably calculated to lead to thediscovery of admissible evidence.
(d) upon failure without lawful excuseto obey a subpoena or to givetestimony and upon reasonable noticeto all persons affected thereby, theDepartment may apply to a civil courtfor an order compelling compliance.
Section 35. Authorized fees andprocedures
A licensee may engage in short termloan transactions, subject to thefollowing:
1. No person not previouslylicensed by the Department to makeloans shall engage in short term loantransactions without first obtaining alicense under the provisions of this Act.
2. A licensee may charge one $5origination fee for a short term loantransaction. No additional originationfee may be charged for renewals of theshort term loan transaction.
3. In addition to the originationfee, a licensee may charge financecharges on the amount finance of theshort term loan transaction at anannual percentage rate not toexceed 40% over the prime rate on thefirst business day of the month prior tothe month in which the short term loantransaction is made, as reported by theFederal Reserve Board.
4. No short term loanagreement shall be for a period of timein excess of thirty-one (31) days.
5. Makers who write a checkfor a short term loan transaction on anaccount that was closed on the date ofthe transaction are subject to all civiland criminal penalties available at law.If a check is returned to the licenseefrom a payor financial institution dueto insufficient funds, closed account, orstop payment order, the licensee maypursueall legally available civil meansto collect the check and chargesimposed on the licensee by the payorfinancial institution. Except asotherwise provided in this Act, an
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individual who issues a personal checkto a licensee under a short term loanagreement is not subject to criminal orcivil penalties.
6. No licensee shall threaten orstate that it has remedies that it doesnot have.
7. Proceeds to the maker in ashort term loan transaction may bemade in the form of a licensee'sbusiness check, money order, or cash;provided, however, that noadditional fee may be charged by alicensee for chasing the licensee'scheck.
8. No licensee may renew anyshort term loan transaction more thantwo consecutive times, after which theshort term loan check must be paid offin cash or its equivalent by the makeror deposited by the licensee.
9. The maker of the check shallhave the right to redeem the checkfrom the licensee at any time prior tothe negotiation or presentment of thecheck, and to receive a credit forunearned finance charges, computedaccording to the actuarial method.
10. After a transaction ha beenrenewed twice, the licensee may notengage in another short term loantransaction with the same customer ofa member of the customer's householdfor ninety (90) days.
11. The face amount of a check
taken for a short term loan may notexceed $500, exclusive of the fees andother finance charges allowed underthis Act.
12. The Department shallmaintain a computerized centralregistry of customers. Any licenseeengaging in a short term loantransaction shall report it to theregistry within one hour. No licenseemay engage in a short term loantransaction with anyone whocurrently has a short term loantransaction with another licensee.
13. Each short term loantransaction must be documented by awritten agreement. The writtenagreement must contain the name ortrade name of the licensee, thetransaction date, the amount of thecheck, and a statement of the totalamount of fees charged, expressed asboth a dollar amount as its effectiveannual percentage rate. Thewritten agreement must authorize thelicensee to defer presentment ornegotiation of the check until a specificdate, not later than thirty-one (31) daysfrom the date the check is accepted bythe licensee.
14. If a short term loantransaction is not paid when due, thelicensee: (a) may recover actual costs ofcollection, including attorney's fees; (b)may not recover any late charge; (c)may not continue to impose financecharges for any period after the duedateof the short term loan transaction
Loyola Consumer Law Review * 1811999
of renewal thereof.
15. No wage assignment orother security may be taken. Nolicensee may require a deposit of cashor withhold any portion of the amountfinanced of the proceeds of thetransaction.
16. All media and point of saleadvertising of a licensee must state theannual percentage rate or range ofannual percentage rates charged withthe same prominence as the licensee'sname and address.
17. A licensee under this Actshall charge only those fees specificallyauthorized in this Section.
Section 40. Conduct of Business OtherThan Making Loans.
A licensee may not carry on otherbusiness at a location where he or sheengages in short term loan transaction.
Section 45. Violations; Suspensions orRevocations of Licenses.
(a) The Director may, upon ten (10)days notice to the licensee by theUnited States mail directed to thelicensee at the address set forth in thelicense, stating the contemplated actionand in general the grounds therefore,and upon reasonable opportunity to beheard prior to such action, finesuspend or revoke any license issuedhereunder if he or she finds that:
1. the licensee has failed to paythe annual license fee or to complywith any order, decision, or finding ofthe Director made pursuant to this Act;
2. the licensee has violated anyprovision of this Act or any regulationor decision made by the Director underthis Act;
3. any fact or condition existswhich, if it had existed at the time ofthe original application for suchlicense, would have warranted theDirector in refusing the issuance ofthe license;
4. the licensee has not operatedthe short term loan business at thelocation licensed for a period of sixty(60) consecutive days, unless thelicensee was prevented from operatingduring such period by reason of eventsor acts beyond the licensee's control.
(b) Prior to suspension or revocation ofa license issued under this Act, theDirector may fine the licensee up to amaximum of $100 per day.
(c) The Director may fine, suspend orrevoke only the particular licenses forparticular places of business orlocations with respect to whichgrounds for revocation may occur orexist; except that if he or she finds thatsuch grounds for revocation are ofgeneral application to all places ofbusiness or locations, or that suchgrounds for fines, suspension, orrevocation have occurred or exist with
182 e Loyola Consumer Law Review Volume 11, number 3
respect to a substantial number ofplaces of business or locations, he orshe may fine, suspend, or revoke all ofthe licenses issued to the licensee.
(d) A licensee may surrender anylicense by delivering to the Directorwritten notice that he or she therebysurrenders such license, but suchsurrender shall not affect suchlicensee's civil or criminal liability foract committed prior to such surrenderor entitle such licensee to a return ofany part of the annual license fee orfees.
(e) Every license issued under this Actshall remain in force until expires, or issurrendered, suspended, or revoked inaccordance with this Act, but theDirector may on his or her own motionissue a new license to a licensee whoselicense was revoked if no fact orcondition then exists that clearly wouldave warranted the Director in refusingoriginally the issuance of the licenseunder this Act.
(f) No license shall be revoked until thelicensee has had a notice of a hearingthereon and an opportunity to beheard. When any license is so revoked,the Director shall within twenty (20)days thereafter, prepare and keep onfile in his or her office a written orderor decision of revocation and shallsend by United States mail a copythereof to the licensee at the address setforth in the license within five (5) daysafter the filing in his or her office ofsuch order, finding, or decision. A
review of any such order, finding, ordecision may be had in the samemanner as provided in Section 22.01 ofthe Currency Exchange Act.
Section 50. Enforcement
(a) The remedies provided herein arecumulative and apply to licensees andunlicensed persons to whom this Actapplies and who failed to obtain alicense.
(b) Any violation of the IllinoisConsumer Fraud and deceptiveBusiness Practices Act, 815 ILCS 505/1et seq., in connection with a short termloan transaction constitutes a violationof this Act.
(c) Any violation of this Act constitutesa violation of the Illinois ConsumerFraud and Deceptive BusinessPractices Act, 815 ILCS 505/1 et seq.
(d) The violation of any provision ofthe Act, or regulation thereunder,except as the result of accidental orbona fide error of computation,renders the short term loan transactionvoid, and the person shall have noright to collect, receive or retain anyprinciple, interest, or other chargeswhatsoever with respect to the shortterm loan transaction.
(e) Any person found to have violatedthis Act shall be liable to the consumerfor actual, consequential, and punitivedamages, plus statutory damages of$1000 for each violation, plus costs, and
Loyola Consumer Law Review e 1831999
attorney's fees.
(f) A consumer may sue for injunctiverelief and other appropriate equitablerelief to stop any person from violatingany provisions of this Act.(g) The remedies provided in thisSection are not intended to be theexclusive remedies available to aconsumer, not must the consumerexhaust any administrative remediesprovided under this Act or any otherapplicable law.
Endnotes
1 See Chet Dembeck, Check-cashing FeesBleeding Customers, THE CAPITAL, Mar. 7, 1999,B1.
2 See e.g., Complaint, Smith v. Short Term
Loans, LLC, 99 C 1288 (N.D. Ill), listing 26loans obtained by a husband and wife atrates of between 342% and 421%.
3 See C. Trevison, Oregon Bills Would PutBrakes on Car-title Lenders, THE OREGONIAN,
Feb. 15, 1999.
4 See Helen Huntley, How a Payday LoanWorks, ST. PETERSBURG TIMES, Oct. 25, 1998, 2H.
5 Mark Barrett, Critics Call Payday LoansScam; Local Business Owners Disagree,ASHEVILLE CITIZEN-TIMES, Jan. 10, 1999, B8.
6 See Chris O'Malley, Payday Lenders Profit
from Loophole, INDIANAPOLIS STAR, Feb. 21, 1999,
Al; payday loans are common amongconsumers filing bankruptcy petitions.
' See Robert Manor, Payday Lenders DrawRegulators' Attention, CHICAGO SUN-TIMES,
Nov. 10, 1998, 48.
8 See John Hendren, High-interest Payday
Loans Make Inroads, ASHEVILLE CITIZEN-TIMES,
Jan. 10, 1999, B8.
' See id; see also Jim Meyers, PaycheckAdvance Firms Attack Void Left by Banks,SACRAMENTO BUSINESS JOURNAL, Oct. 23, 1998,26; H. Timmons, Fast-Growing Payday LoanBusiness: Convenience or Legal Loan Sharking,AMERICAN BANKER, Mar. 10, 1999, 6.
10 AP Dispatch, Jan. 9, 1999, 10.57.
1 See Helen Huntley, Short Loans, HighRates, Regulator Questions, ST. PETERSBURG
TIMES, Oct. 25, 1998, 1H.
12 See Dembeck, supra note 1.
13 See Danielle Herubin, Some Check-Cashers
Charging Interest That Can Reach 520%, PALMBEACH POST, Nov. 11, 1998, 6B.
14 See id.
1 See Manor, supra note 7.
16 See O'Malley, supra note 6.
17 See Huntley, Short Loans, supra note 11;
Manor, City Sues Payday Loan Firm, CHICAGO
SUNTMES, Feb. 19, 1999, 52.
18 See Bill Poovey, Alabama Group Hits High
Interest Rates, CHATTANOOGA FREE PRESS, Dec.27, 1998, B10; Helen Huntley, State Gets Toughon Payday Lenders, ST. PETERSBURG TIMES, Jan. 8,1999, 1E; Huntley, Short Loans, supra note 11.
184* Loyola Consumer Law Review Volume 11, number 3
19 See Hamilton v. York, 987 F.Supp. 953(E.D.Ky. 1997); In re Miller, 215 B.R. 970
(Bankr. E.D.Ky. 1997).
2' Hamilton, 987 F.Supp. at 956.
21 Id.
2 These states and territories and theirmaximum rates are as follows: Alabama,36%; Alaska, 36%; Arizona, 36%; Arkansas,17%; Connecticut, 28.52%; Georgia, 57.68%;Hawaii, 24%; Maine, 30%; Maryland, 33%;Massachusetts, 39.86%; Michigan, 25%; NewHampshire, 24%; Pennsylvania, 23.57%;Puerto Rico, 25%; Rhode Island, 36%; Texas,31.65%; Vermont, 24%; Virginia, 36%; VirginIslands, 26%; West Virginia, 31%.
2 These jurisdictions have special paydayloan laws that exempt payday lenders fromstate usury laws. The fees permitted,expressed as a dollar fee or percentage of theloan amount and also as an annualpercentage rate for a 14-day loan, are asfollows: California, 15% and 391%; Colorado,25% or $25 and 625%; District of Columbia,10% plus up to $20 fee and 391%; Florida,10% or $5 and 261%; Iowa, 15% for first $100then 10% and 391%; Kansas, sliding scalefrom $5.50 for up to $50 loan to 6% plus $5for $250 loan and 391%; Kentucky, 15% and391%; Louisiana, sliding scale from $5 to $15and 261%; Minnesota, sliding scale from$5.50 for up to $50 to 6% plus $5 for 250 loanand 391%; Mississippi, 18% and 469%;Missouri, 15% and 391%; Nebraska, 15% and391%; Nevada, to be set by administrativeregulation; North Carolina, 15% and 391%;Ohio, 5% per month and 391%; Oklahoma,20% and 521%; South Carolina, 15% and391%; Tennessee, 15% or $30 and 391%;Washington, 15% and 391%; Wyoming, 20%or $30 and 521%.
24 Twelve states do not set limits on small
loan interest rates and permit payday loans
by omission: Delaware, Idaho, Illinois,Montana, New Jersey, New Mexico, NewYork, North Dakota, Oregon, South Dakota,Utah and Wisconsin. Indiana sets amaximum APR of 36% but allows paydaylending by setting a minimum financecharge of $33, which amounts to 1,716% APRon a $100 loan.
25 In re Carlson, 101 Ill. App. 3d 924, 428
N.E. 2d 1005, 1010 (1s' Dist. 1981), citing,Hume v. United States, 132 U.S. 406, 410(1889).
26 Ahern v. Knect, 563 N.E.2d 787, 792 ( 2 nd
Dist. 1990).
27 Id.
2 Williams v. Walker Thomas FurnitureCo., 121 U.S.App.D.C. 315, 350 F.2d 445, 450(1965).
33 See Brown v. C.I.L., Inc., 1996 U.S.Dist.LEXIS 4053 (N.D.Ill., Mar. 29, 1996), adopting1996 U.S.Dist. LEXIS 4917 N.D.Ill., Jan. 281996) (motion to dismiss); Cobb v. MonarchFinance Corp., 1996 U.S.Dist. LEXIS 2814(N.D.III., Mar. 8, 1996), later opinion 1996U.S.Dist. LEXIS 776 (N.D.Ill., June 4, 1996),later opinion 1997 U.S.Dist. LEXIS 754(N.D.Ill. 1997); In re Miller, 215 B.R. 970(Bankr. E.D.Ky. 1997). See generally, Steven W.Bender, Rate Regulation at the Crossroads ofUsury and Unconscionalbility: The Case for
Loyola Consumer Law Review 9 1851999
Regulating Abusive Commercial and ConsumerInterest Rates Under the UnconscionablityStandard, 31 Hous. L. Rev. 721 (Fall, 1994).
See Huntley, Short Loans, supra note 11.
35 See In re Davis, 169 B.R. 285, 304(E.D.N.Y. 1994).
36 See Ahern, 563 N.E.2d at 790.
17 See American Buyers Club v. Grayling, 53Ill. App. 3d 611, 368 N.E.2d 1057 (5th Dist.1977).
39 See Chris O'Malley, Audit by State ShowsRecord of Overcharging by Firms, INDIANAPOLIS
STAR, Feb. 21, 1999, E2; see also, Hamilton vYork, 987 F.Supp. 953 (E.D.Ky. 1997); In reMiller, 215 B.R. 970 (Bankr. E.D.Ky. 1997).
40 See Turner, 1999 U.S.Dist. LEXIS at 2045.
41 See Complaint, Anderson v. Short Term
Loans, 98 C 4949 (N.D.Ill. 1998).
42 See Complaint, Smith v. One Iron
Ventures, 99 C 1561 (N.D.Ill. 1999).
43 See Complaint, Reed v. ChartwellFinancial Services, 98 C 6965 (N.D.I1l. 1998).
44 See T. Sharp, House Sends Payday LoanExtension to Governor's Desk, AP Dispatch,Mar. 4, 1999.
41 See Huntley, Short Loans, supra note 11.
46 Section 1664 provides:
Advertising of credit other than open endplans ITILA § 1441
... (c) Rate of finance charge expressedas annual percentage rateIf any advertisement to which thissection applies states the rate of a financecharge, the advertisement shall state therate of that charge expressed as anannual percentage rate.(d) Requisite disclosures in advertisementIf any advertisement to which thissection applies states the amount of thedownpayment, ifany, the amount of any installmentpayment, the dollar amount of anfinance charge, or the number ofinstallments or the period of repayment,then the advertisement shall state all ofthe following items:(1) the downpayment, if any;(2) the terms of the repayment;(3) the rate of the finance chargeexpressed as an annual percentage rate.
Regulation Z, 12 C.F.R. § 226.2(a)(2), defines"advertisement" to mean "a commercialmessage in any medium that promotes,directly or indirectly, a credit transaction."
47 See Robert Manor, City Sues Payday LoanFirm, Chicago Sun Times, Feb. 19, 1999, 52.
4 See Huntley, Short Loans, supra note 11;John Hendren, Despite Gripes, More StatesAllow Triple Digit Loan Rates, ChattanoogaFree Press, Jan. 10, 1999, J6; see also, Turner,1999 U.S.Dist. LEXIS at 2045; Brigance, 219B.R. at 486.
4 The deceptive practice statute, 720 ILCS5/17-1 (B), provides that:
[a] person commits a deceptive practice
when, with intent to defraud: ....
(d) with intent to obtain control over
186. Loyola Consumer Law Review Volume 11, number 3
property or to pay for property, labor orserviceof another, or in satisfaction of anobligation for payment of tax under theRetailers' Occupation Tax Act [35 ILCS120/1 et seq.] or any other tax due to theState of Illinois, he issues or delivers acheck or other order upon a real orfictitious depository for the payment ofmoney, knowing that it will not be paidby the depository. Failure to havesufficient funds or credit with thedepository when the check or otherorder is issued or delivered, or whensuch check or other order is presentedfor payment and dishonored on each of 2occasions at least 7 days apart, is primafacie evidence that the offender knowsthat it will not be paid by the depository,and that he has the intent to defraud.(e) he issues or delivers a check or otherorder upon a real or fictitious depositoryin an amount exceeding $150 in paymentof an amount owed on any credittransaction for property, labor services,or in payment of the entire amount owed
on any credit transaction property, laboror services, knowing that it will not bepaid by the depository, and thereafterfails to provide funds or credit with thedepository in the face amount of thecheck or order within seven days ofreceiving actual notice from thedepository or payee of the dishonor ofthe check or order.
It follows that issuing a bad check inpayment of preexisting obligations notinvolving the procurement of property, laboror services, and not involving a taxobligation, is not covered.
