Payday Loan Lawsuit: Lender’s 235% Interest Rate Lands Them in Hot Water

As a result of the staggering economy, more and more people are finding it difficult to pay their bills. As a result, the payday loan industry has popped up to lend a hand to cash-strapped consumers.

These entities have been lifesavers for many people in desperate need of financial assistance. However, doing business with these so-called loan sharks, or quickie loan companies, often comes at a high price. Borrowers often pay hefty interest rates and many lenders require quick repayment terms.

Despite the instant fix for those in financial predicaments, many borrowers default on these short term loans forcing them to go into even greater debt-and the payday loan industry is raking in the profits as a result.

Some payday lenders have even been found skirting the law to further increase their bottom lines.

Case in Point: Cashland Lawsuit

A case in point involves a debt collection lawsuit filed in 2008 against Cashland, the largest U.S. payday loan company.

In December 2008, Cashland extended a loan to a borrower (the plaintiff) in exchange for an APR interest rate of a whopping 235.48 percent. Due to virtually unattainable payback terms, the borrower defaulted on the loan. A lawsuit was thereafter filed against Cashland alleging usurious violations.

Short Term Loan Act violation

In the complaint, the plaintiff’s attorney argued that Cashland violated stipulations set forth in the Short Term Loan Act passed in 2008.

The Short Term Loan Act is a law that regulates payday loan companies. Among many requirements, the law specifies that payday, or short term loan lenders, cannot charge more than 28 percent interest on a loan and that they must give borrowers at least 30 days to repay the loan.

Cashland charged well over the 28 percent for the loan in question, but also mandated a repayment schedule of less than 30 days. As a result, the plaintiff argued that they violated the law.

However, Cashland says that the company is licensed as a second mortgage lender, is therefore regulated by the Ohio Mortgage Loan Act, and thus not regulated by the terms of the Short Term Loan Act and can legally charge any interest they choose with any payback stipulations they want.

Court Doesn’t Buy Cashland’s “Mortgage Lender” Label

The Court of Appeals for Ohio’s Ninth Judicial District heard the case and disagreed with the defendant. In December 2012, the court issued a ruling against Cashland reasoning that, despite Cashland’s contentions that they are regulated under the Ohio Mortgage Loan Act, their practices are essentially the same as a check-cashing business and as such fall under the jurisdiction of the Short Term Loan Act. And, because their payday agreement was outside the scope of the Act, they violated the law.

Ohio Neighborhood Finance, dba Cashland, has since appealed the decision to the Ohio Supreme Court.

The company is currently facing another lawsuit in the United States District Court for the Southern District of Ohio for other usurious violations.