Illinois Attorney General Files Lawsuit Against Lender Asserting Violations of Dodd-Frank

The Illinois Attorney General has recently filed the first lawsuit by an AG of its kind.  The action is one against a small loan lender alleging violations of the Dodd-Frank prohibition of unfair, deceptive or abusive acts or practices, in addition to violations of state law.  Section 1042 of Dodd-Frank authorizes state AGs to bring civil actions in the name of the state against state-licensed entities.

According to the complaint, the lender offered lines of credit on which it charged a stated annual interest rate ranging from 18% to 24%.  The complaint alleges that, in an attempt to evade Illinois’ annual interest rate cap, the lender charged a mandatory “account protection fee” that was payable every two weeks in addition to accrued daily interest.  The lender allegedly misrepresented the true costs of the loans and provided consumers repayment schedules where no payments went toward paying down the principal balance.

Recently, the Consumer Financial Protection Bureau (the “CFPB”) filed suit in Massachusetts federal court against several companies that funded, purchased, serviced and collected online payday loans made by a tribally-affiliated lender.  The CFPB complaint alleged that the loans in question were void, as a matter of state law, because the lender charged excessive interest and/or failed to obtain a required license.  The defendants were charged with engaging in unfair, deceptive and abusive acts and practices.  The matter was noteworthy in that the CFPB’s legal theory included an attempt to bootstrap purported state law violations into an attack upon businesses in the online payday lending space.

Here, conversely, the Illinois Attorney General’s reliance upon Dodd-Frank appears to be an attempt to use its prohibition of abusive acts or practices as another way of challenging the “account protection fee” if it is ultimately determined not to violate Illinois law.