Court grants summary judgment in lawsuit against payday lender
On August 23, a municipal court in Ohio granted a defendant’s motion for summary judgment in a case involving a payday loan. According to the order, the plaintiff’s complaint alleged that the defendant, in April 2019, signed a line of credit and security agreement with a lender in the amount of $1,101 and agreed to repay the amounts advanced within a 30 day billing cycle subject to some fees and an interest rate of 24.99%. The complaint further alleged that the defendant failed to make the payment on time and that subsequently the plaintiff, as assignee of the lender, sought to enforce the agreement. In its response, the defendant denied having entered into such an agreement and referred to the transaction as a “loan of $500”, claiming that this matter “involved an illegal scheme by [the short-term cash lender, the mortgage lender, and the plaintiff] to issue and collect illegal payday loans as part of a scheme to attempt to evade compliance with new state loan laws. Plaintiff brought counterclaims for violation of the Short Term Loan Act, Mortgage Act, Ohio Consumer Sales Practices Act, and civil conspiracy.
On a motion for summary judgment, the defendant argued that it was entitled to judgment on “plaintiff’s complaint because the parties’ April 2019 agreement” is void because it was entered into in violation of the Ohio Lending and Consumer Laws. “The defendant made two arguments: (i) the lender is not permitted under the Short-Term Loans Act to issue a loan of less than $1,000; and (ii) the lender is “prohibited from engage in any act or practice intended to circumvent the prohibition on registrants under the Mortgage Loans Act from making loans of $1,000 or less or for terms of one year or less.”
In entering summary judgment for the defendant, the court found that the underlying transaction was a “plain language indefinite loan” of the Mortgage Act, and that it was not a loan of $1,000 or less or for a term of one year or less under the Mortgage Loans Act, but by using the framework of the security agreement, the lender has committed an act or practice to evade the prohibition of the Mortgage Loans Act. The court found that the evidence showed that the defendant approached the lender for a simple loan of less than $1,000 and received a check for $501 that day. The court further concluded that “it would appear [the lender] gave the defendant what she was looking for, namely a short-term loan… but without complying with any of the myriad restrictions applicable to such loans under the Short-Term Loans Act. The court held that the framework of the security agreement was invalid because the “legally convoluted” structure did not benefit the parties in any meaningful way, and “the only explanation the Court can discern as to why which this structure was used is that it was a ploy”. for evading the restrictions of the law on short-term loans which would otherwise have applied to the parties’ transaction. »