The opinion of the court was delivered by: Richard Mills, District Judge.
The dispositive issue in this Truth in Lending Act case relates
to whether, under Illinois law, a post-dated check can be used to
secure repayment of a "payday loan."
In short, the answer is "yes."
Motion to Dismiss allowed.
I. Facts alleged in the complaint
Defendant National Cash Advance ("NCA") operates "payday loan"
establishments throughout various locations in the Central
District of Illinois. "Payday loans" are short term, high
interest rate loans, that are typically two weeks in duration and
carry annual percentage rates of over 500 percent. At the end of
the two week term, the customer has the option of continuing the
loan for an additional period by paying the interest.
During the year prior to the filing of this action, Plaintiff
William D. Hahn obtained three payday loans from NCA for
nonbusiness purposes. On September 25 and October 8, 1998, Hahn
borrowed $200.00 on each occasion by paying $44.00 as a finance
charge on each of the loans. In addition, on November 2, 1998,
Hahn borrowed $175.00 by paying $39.00 as a finance charge. On
each occasion, he wrote a post-dated check in the amount of the
loan and the financing charge. In addition, he signed a "Consumer
Loan Agreement" which included the following statement: "[y]our
post-dated check is security for this loan." Hahn alleges that
the above statement stands for the proposition that the "borrower
is giving a security interest in the post-dated check."
Hahn also alleges that, under Illinois law, an ordinary check
does not operate as an assignment of the underlying bank account,
and thus, it does not create any sort of meaningful security
interest. Thus, he argues that NCA's security interest disclosure
violates the Truth in Lending Act, 15 U.S.C. § 1601 et seq.
("TILA"), and Regulation Z, 12 C.F.R. § 226.17 and 226.18.
Count I of the Complaint is a class action claim against NCA
for a violation of TILA via Hahn's November 2, 1998 loan. Count
II is an individual claim for a TILA violation based on Hahn's
September and October "payday loan" transactions. Count III is a
class action claim for unconscionability against all Defendants.
Lastly, Count IV is a class action claim under the Illinois
Consumer Fraud Act, 815 ILCS 505/2, against all Defendants.
Defendants move to dismiss all counts.
II. Legal Standard for Motion to Dismiss
In ruling on a motion to dismiss, the Court must accept well
pleaded allegations of the complaint as true. See Hishon v. King
& Spalding, 467 U.S. 69, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59
(1984); Car Carriers, Inc. v. Ford Motor Co., 745 F.2d 1101,
1104 (7th Cir. 1984), cert. denied, 470 U.S. 1054, 105 S.Ct.
1758, 84 L.Ed.2d 821 (1985). Although a complaint is not required
to contain a detailed outline of the claim's basis, it
nevertheless must contain either direct or inferential
allegations respecting all the material elements necessary to
sustain a recovery under some viable legal theory. Car
Carriers, 745 F.2d at 1106. Mere conclusions, without supporting
factual allegations, are insufficient to support a claim for
relief. Cohen v. Illinois Inst. of Tech., 581 F.2d 658, 663
(7th Cir. 1978). Dismissal should not be ...