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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. Oh yes, lifetime tenure. The Founders gave that to the federal judges .... at that time no federal district courts existed .... so we are talking the Supreme Court justices only in context ....so that they could rule against traditional marriage and for the other pet projects of the sixties generation. Right. Hmmmm, but I must admit, there is something from that time frame that seems to recommend itself in this context ..... on yes, from a document the Founders penned in 1776: " He has refused his Assent to Laws, the most wholesome and necessary for the public good."

  2. Payday loans take advantage of people in many ways. It's great to hear that the courts are using some of their sins to pay money back to the community. Hopefully this will help change the culture of many loan companies, and make lending a much safer endeavor for those in need. http://lawsuitlendingnow.com/lawsuit-loans-post-settlement.html

  3. A traditional parade of attorneys? Really Evansville? Y'all need to get out more. When is the traditional parade of notaries? Nurses? Sanitation workers? Pole dancers? I gotta wonder, do throngs of admiring citizens gather to laud these marching servants of the constitution? "Show us your billing records!!!" Hoping some video gets posted. Ours is not a narcissistic profession by any chance, is it? Nah .....

  4. My previous comment not an aside at court. I agree with smith. Good call. Just thought posting here a bit on the if it bleeds it leads side. Most attorneys need to think of last lines of story above.

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