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HAHN v. MCKENZIE CHECK ADVANCE OF ILLINOIS

August 25, 1999

WILLIAM D. HAHN, PLAINTIFF,
v.
MCKENZIE CHECK ADVANCE OF ILLINOIS, LLC, DOING BUSINESS AS NATIONAL CASH ADVANCE, AND JOHN DOES 1-10, DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, District Judge.

OPINION

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

A. General allegations

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.

B. Counts

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 ...


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