Background. For the first time, a state attorney general sued a payday lender under a provision of the Dodd-Frank Act that authorizes state Attorney Generals to bring civil actions in the name of the state against state licensed parties to enforce provisions of the act.
The Illinois attorney general brought an action against a lender who charged a “Required Account Protection Fee” of $10-$15 for every $50 of the outstanding loan every two weeks, in addition to an 18-24 percent annual interest charge. The complaint alleges that the Defendant’s description of the Required Account protection Fee “deceptively leads consumers to believe that this mandatory fee is an insurance product” and further asserts that the benefit, if any, to the consumer by paying such fee is so minimal that no reasonable consumer who understands the risks and costs would agree to pay it. The complaint adds that the defendant misrepresented the true cost of consumers’ loans, alleging that the added fee was merely a veiled form of interest meant to sidestep the state’s 36 percent interest rate cap and allow the lender to charge rates of 350 to 500 percent. As a result, the disclosed percentage rate was misleading. Finally, the AG accuses the lender of creating an endless cycle of debt since the monthly minimum payments were not applied to the principal balance.
Relevance. Among all of the alleged UDAAP violations, the lawsuit focused on the fact that the defendant’s “structurally unfair loan product, [was] designed to be unfair, deceptive and abusive in keeping consumers in an endless cycle of debt.” Until now, this has generally been the domain of the CFPB. This lawsuit, however, may be the first of many initiated by state AGs focused on UDAAP violations in the attack against payday lenders.
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