Keeping regulator focus on payday lending alive, Illinois Attorney General Lisa Madigan announced a $3.5 million settlement with a lender accused of violating the state’s cap on interest rates.
In 2014, Illinois Attorney General Lisa Madigan filed suit against All Credit Lenders, accusing the company of working around the 36 percent interest rate limit set by the Illinois Financial Services Development Act (FSDA) for small revolving credit loans.
The AG alleged that to avoid the interest rate limitation, All Credit labeled its charges as an “account protection” fee. According to the AG, this misled borrowers about the true nature of the charges, and thus the lender engaged in deceptive practices in violation of the state’s Consumer Fraud and Deceptive Business Practices Act as well as the federal Dodd-Frank Wall Street Reform and Consumer Protection Act.
Madigan alleged that All Credit’s “account protection” fees (about $11-$15 for every $50 in outstanding balance, charged biweekly) operated as a disguised interest rate that in some cases could reach 500 percent. According to the complaint, the revolving credit loan product with the account protection fee was also “unfair, abusive and designed to place consumers in an endless cycle of debt.”
To settle the suit, All Credit agreed to immediately stop offering the revolving line of credit and to waive and deem paid in full all loans that included the fee. The lender will pay a total of $3.5 million; $200,000 has already been paid in restitution to borrowers who were unemployed or receiving Social Security at the time they received their loan, as well as borrowers who filed complaints with the AG’s office.
The AG’s office also reached agreements with five other unidentified lenders in the state that offered similar loan products who are also required to stop offering the product and cease collecting on such loans.
“These are egregious violations of the payday reform law we fought to put in place to protect consumers from outrageously expensive loans,” Madigan said in a statement. “All Credit Lenders and these other operators concoct illegal fees and costs, then fail to disclose them, and as a result, consumers end up owing enormous amounts outlawed by our reforms.”
To read the final judgment and consent decree in Illinois v. CMK Investments, Inc., click here.
Why it matters
While announcing the settlement, Illinois AG Madigan also took the opportunity to indicate her support for the Consumer Financial Protection Bureau’s (CFPB) proposed payday lending rules. In her comments filed with the Bureau, Madigan praised the establishment of a nationwide minimum standard for small loan lenders as well as the creation of a nationwide database of such lenders. The Illinois action serves as a reminder that payday lenders remain in the crosshairs of both state and federal regulators.