- Indiana Court of Appeals Denies Recovery of Excessive Interest to Payday Lender
- July 6, 2009 | Author: Gerald L. Baldwin
- Law Firms: Frost Brown Todd LLC - Office ; Frost Brown Todd LLC - Office
Relying on Indiana statutes, common law, and public policy, an Indiana court of appeals recently held a finance charge additionally stated as an annual percentage rate (APR) could only be charged as such when it was explicitly included in the lender agreement1. The court rejected Payday’s argument that a “Promise to Pay” section was unambiguous enough to inform the borrower that she was to pay the APR as a recurring biweekly charge until the loan was paid. It also rejected Payday’s argument claiming the posting of the biweekly charge as an APR as required by the Truth in Lending Act was sufficient to constitute an intent by the borrower to be contractually bound.
Anne Defreeuw defaulted on a fourteen day $200.00 Payday loan with a $25.00 finance charge. Ms. Defreeuw’s bank account was closed when Payday presented her $225.00 postdated check, which was returned. Payday sued for fraud in the amount of $1,195, which included treble damages, attorney’s fees, and a one-time statutory fee. It also sued for $2,100, which was the $25.00 finance charge annualized at 325.89% for the unpaid periods. The trial court held for Payday on the fraud claim and denied the APR claim, to which Payday appealed.
Payday asserted that Ms. Defreeuw, being unambiguously informed of the finance charge annualized as a certain APR, had contractually committed to paying that APR until her loan obligation was satisfied. In charging what would normally be usurious and loansharking interest rates, Payday relied on the Small Loans Act, which does not explicitly cap the APR on loans. The court found this in derogation of both statutory and common law as an impermissible astronomical deviation from established law.
Payday also relied on the language in its “Promise to Pay” section in conjunction with the listing of the APR to show evidence of contractual intent. The court found otherwise, saying the “Promise to Pay” section, which was part of the contract, unambiguously failed to contemplate an APR. It also held the stated APR, which was not part of the contract but merely informational, should not be read with the “Promise to Pay” section. To collect interest in excess of the stated finance charge, Payday must include the interest language as part of the borrowing agreement.
1Payday Today, Inc. v. Defreeuw, 2009 WL 973296 (Ind. App.)