CHICAGO (CN) – The Payday Loan Stores of Illinois victimize customers by demanding 300 percent interest and flipping loans with balloon payments, according to a federal class action. The named plaintiff says he’s paid nearly $5,000 on a $2,265 loan and Payday has reduced the principal by only $30.
Dominginho Powell claims that Payday sets up its customers to fail, making “the first payment affordable, and the second payment unaffordable.”
A small initial payment is followed by a balloon payment a month later, and when customers, as expected, cannot make the balloon payment, Payday flips the loan, Powell says.
He says it flipped his loan nine times, typically charging him around $550 for his first payment and $2,800 for the second one – plus finance charges of more than $1,100.
After borrowing $2,265 for a car loan in June 2008, Powell says, he paid nearly $5,000 in the next 10 months, and still owes $2,235 in principal.
He says Payday forced him to refinance his loan every month after the first payment, as well “before the maturity of the original loans,” and that Payday sought “to collect much more in finance charges,” without disclosing the true nature of each loan.
Powell says that all of his loan documents were virtually identical. But Payday treated each loan as separate, with finance charges of more than $1,000 each time he refinanced.
Powell says that Payday harassed him about the final loan agreement, which he says he never signed, and continued to call his cell phone with an automatic telephone dialing system after he told them to stop.
He alleges violations of the Equal Opportunity Credit Act, the Truth in Lending Act, the Telephone Consumer Protection Act, and consumer fraud.
The class seeks actual and punitive damages, and statutory damages of $500 to $1500 for each phone call.
The class is represented by Alexander Burke.