Madigan files suit against payday lender for selling short-term loan designed to evade state reforms

Attorney general alleges All Credit Lenders' payday loans trap borrowers in cycle of debt

[March 24, 2014]  CHICAGO — Attorney General Lisa Madigan filed suit last week against a Chicago area payday lender for designing and selling a new emerging short-term loan intended to thwart important protections in Illinois law against predatory payday lending and to trap borrowers in an inescapable cycle of debt.

Madigan filed the lawsuit in Cook County Circuit Court against CMK Investments Inc., which operates as All Credit Lenders, selling small consumer loans and lines of credit. All Credit Lenders is based in Elgin but operates storefronts across Illinois, Wisconsin and South Carolina.

Madigan alleges that All Credit Lenders is evading the state's 36 percent interest-rate cap by offering a short-term loan product that acts like a revolving line of credit but offers none of the protections of a credit card. The lender allegedly offers these credit card-like products with advertised interest rates of 18-24 percent. Madigan alleges the company thwarts the state interest-rate cap by tacking on bogus "required account protection fees." When the extra fees are factored into the total cost of the short-term loan, the interest rates soar to 375-500-plus percent, according to Madigan's lawsuit.

After a borrower takes out the short-term loan, All Credit Lenders allegedly provides a payment schedule and instructs the borrower to make minimum payments, which consumers who filed complaints with Madigan's office believed was a timeline to pay off the full debt.

Madigan's lawsuit alleges that none of the minimum payment goes to paying down the principal of the loan. Instead, the minimum payments only cover the extra fees, which are charged to consumers on a biweekly basis.

"This new loan product is one of the most abusive attempts to evade the reform laws we have seen," Madigan said. "This company provides consumers repayment schedules where not one penny of their payment goes toward paying down the principal balance, making it impossible to pay off their loan."

The Illinois Department of Financial and Professional Regulation assisted Madigan's office with its investigation.

"We were pleased to be able to help the attorney general prosecute this lender," said Manuel Flores, acting secretary of Financial and Professional Regulation. "It is important that we protect every consumer from unscrupulous lenders."

Madigan's lawsuit is the first action her office has taken under the new federal Dodd-Frank Act. It also alleges violations of the Illinois Consumer Fraud and Deceptive Business Practice Act. The lawsuit seeks to ban the company from selling lines of credit and revolving credit in Illinois, provides restitution to all consumers affected, and assesses penalties for violating the law.

Assistant Attorneys General Sarah Poulimas and Vaishali Rao are handling the case for Madigan's Consumer Fraud Bureau.

[Text from file received from the office of Illinois Attorney General Lisa Madigan]