Section 1042 of the Dodd-Frank Act authorizes state attorneys general to bring lawsuits in the name of the state against state-licensed entities to enforce Dodd-Frank provisions. Up until now, this power has not been exercised, except where an attorney general has joined with the Consumer Financial Protection Bureau (“CFPB”) to prosecute lenders.
In People of the State of Illinois v. CMK Investments, LLC d/b/a All Credit Lenders, Inc. (Cook Co., Ill.), the Attorney General alleges the lender, a small-dollar/“payday” loan issuer, evaded the Illinois state annual interest rate cap (36%) by charging various “account protection fees.” This fee ranged from $10-$15 for every $50 in outstanding balance. The Attorney General’s lawsuit asserts in some instances, the interest rate could actually range from 350-500%. The lawsuit also makes allegations regarding misrepresentations by All Credit with respect to this lending product.
The Illinois Attorney General invokes the Dodd-Frank Act to assert unlawful “abusive acts or practices” under Section 5481. The prayer for relief asks the Court to declare several actions of All Credit violate this provision of Dodd-Frank. This lawsuit will now give an Illinois State Court judge, instead of the CFPB, the opportunity to declare what an “abusive act” is under Dodd-Frank. These conclusions about payday lending can then be used by other consumer lawyers and regulators to enforce Dodd-Frank against other entities. Although an Illinois state court judge’s interpretation would not be binding on the courts of other states, it would certainly be persuasive authority in light of the limited body of case law on these topics.
If your organization has questions about how this state attorney general authority applies, please contact Spilman or other knowledgeable counsel.