Appeals court rules on payday-loan interest

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Even though the Indiana Court of Appeals concluded a business that provides cash advances waived its claim of right to recover for breach of contract, the judges still considered whether the company could recover a payment with more than 300 percent interest tacked on to it.

In Payday Today Inc. v. Anne Defreeuw, No. 71A05-0804-CV-253, Payday Today sued Anne Defreeuw in small claims court for fraud and treble damages after a post-dated check she gave in return for a cash advance bounced because the account was closed. Payday sought more than $2,000 in treble damages, attorney fees, and court costs, as well as another $2,100 to represent the 325.89 percent interest rate it believed it was charging over the 84 bi-weekly periods when the original $200 loan was unpaid.

The trial court ordered Defreeuw to pay the nearly $2,000 in damages and court costs but didn't order payment on the interest. It wasn't until trial that Payday asserted it was entitled to damages for both fraud and breach of contract, so the trial court understandably only ruled on the fraud claim because Defreeuw didn't have timely notice of the company's intent to recover under both theories, wrote Senior Judge Betty Barteau.

Despite the waiver, the Court of Appeals decided to address Payday's ability to recover the interest.

"The nature of this type of proceedings involving a loan to a destitute borrower makes it unlikely that a borrower will ever be able to participate in the appellate process," wrote the senior judge.

The appellate judges examined usury laws and Indiana's Uniformed Consumer Credit Code - Small Loans chapter, which was passed in 2002. The IUCCC instituted an annual interest rate set at the annual limit of 36 percent and in Livingston v. Fast Cash, USA, Inc., 753 N.E.2d 572, 575 (Ind. 2001), the Indiana Supreme Court held small payday loans were governed by the IUCCC's limitation on usurious interest rates and by Indiana's loan-sharking statute. The Small Loans Act says finance charges made on small loans are exempt from the statutory limit on a loan finance charge of 36 percent and the statutory definition of loan sharking, which happens when someone receives an annual percentage rate of more than 72 percent.

The Small Loans statute under which Payday claims it's protected from usury laws conflicts with statutory law and the common law stated in Livingston, wrote the senior judge. It appears Payday believes the Small Loan Act frees it from the usury and loan-sharking statutes, but the judges disagreed.

"Credit crises are, in large part, the result of poor borrowing choices, limited loan availability, and unconscionable interest charges. In view of these public policy considerations, we do not believe our legislature intended to free lenders to assess the unconscionable interest rate sought by Payday against Defreeuw," wrote Senior Judge Barteau.

Although the Small Loans Act doesn't explicitly cap the APR on loans, given its derogation of both statutory and common law, it can't authorize "an astronomical deviation from established law," she wrote.

The Court of Appeals also examined the contract between Payday and Defreeuw and ruled its "Promise to Pay" section doesn't require her to pay any annualized interest rate. If Payday wants to collect interest, it has to include that interest as part of the agreement.


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  1. If a class action suit or other manner of retribution is possible, count me in. I have email and voicemail from the man. He colluded with opposing counsel, I am certain. My case was damaged so severely it nearly lost me everything and I am still paying dearly.

  2. There's probably a lot of blame that can be cast around for Indiana Tech's abysmal bar passage rate this last February. The folks who decided that Indiana, a state with roughly 16,000 to 18,000 attorneys, needs a fifth law school need to question the motives that drove their support of this project. Others, who have been "strong supporters" of the law school, should likewise ask themselves why they believe this institution should be supported. Is it because it fills some real need in the state? Or is it, instead, nothing more than a resume builder for those who teach there part-time? And others who make excuses for the students' poor performance, especially those who offer nothing more than conspiracy theories to back up their claims--who are they helping? What evidence do they have to support their posturing? Ultimately, though, like most everything in life, whether one succeeds or fails is entirely within one's own hands. At least one student from Indiana Tech proved this when he/she took and passed the February bar. A second Indiana Tech student proved this when they took the bar in another state and passed. As for the remaining 9 who took the bar and didn't pass (apparently, one of the students successfully appealed his/her original score), it's now up to them (and nobody else) to ensure that they pass on their second attempt. These folks should feel no shame; many currently successful practicing attorneys failed the bar exam on their first try. These same attorneys picked themselves up, dusted themselves off, and got back to the rigorous study needed to ensure they would pass on their second go 'round. This is what the Indiana Tech students who didn't pass the first time need to do. Of course, none of this answers such questions as whether Indiana Tech should be accredited by the ABA, whether the school should keep its doors open, or, most importantly, whether it should have even opened its doors in the first place. Those who promoted the idea of a fifth law school in Indiana need to do a lot of soul-searching regarding their decisions. These same people should never be allowed, again, to have a say about the future of legal education in this state or anywhere else. Indiana already has four law schools. That's probably one more than it really needs. But it's more than enough.

  3. This man Steve Hubbard goes on any online post or forum he can find and tries to push his company. He said court reporters would be obsolete a few years ago, yet here we are. How does he have time to search out every single post about court reporters and even spy in private court reporting forums if his company is so successful???? Dude, get a life. And back to what this post was about, I agree that some national firms cause a huge problem.

  4. rensselaer imdiana is doing same thing to children from the judge to attorney and dfs staff they need to be investigated as well

  5. Sex offenders are victims twice, once when they are molested as kids, and again when they repeat the behavior, you never see money spent on helping them do you. That's why this circle continues