A proposed class action lawsuit filed in California argues that the “exorbitantly high and unconscionable fees and interest rates” allegedly charged on short-term loans by defendant Strategic Funding Source, Inc. violate numerous consumer protection statutes.
The suit explains that the defendant lends predominantly to individuals with “limited credit opportunities,” with “most” of Strategic Funding Source’s borrowers unable to repay their obligations in full. According to the 13-page complaint, Strategic Funding Source’s primary business model is to offer borrowers—many of whom take out loans from the company “in times of emergency,” the suit states—short-term, high-interest loans with interest rates that surpass 130 percent. Moreover, the defendant’s loans include default clauses that call for penalties of up to $5,000 for seemingly mundane transgressions, such as switching a bank account, the suit says.
The defendant’s business model, the complaint claims, aims to lock borrowers into loans they cannot afford to repay, with borrowers ultimately repaying “many times the face value” of their loans to Strategic Funding Source without making a dent in the principle balance owed. When a borrower defaults on his or her loan, the defendant allegedly compounds its profits by “adding default interest and penalties” while commencing aggressive collection efforts.
Per the plaintiff’s alleged situation, the case says the woman entered into a loan agreement with Strategic Funding Source for a principal sum of $20,500. The loan agreement specified no interest rate, the lawsuit claims, although the terms that were specified hashed out to a loan term of 45 weeks with an interest rate of 74 percent, with thousands of dollars in potential fees waiting should the plaintiff default. Such terms are outright predatory, the suit alleges. From the complaint:
“SFSI intentionally made the terms of the Subject Loan so onerous that they would be beyond any reasonable ability to repay the amount borrowed as pursuant to the Promissory Note. [the plaintiff] was required to repay a minimum of $28,485.80 within approximately 10.5 months of taking out a loan where [the plaintiff] saw post-fee proceeds of less than $20,000.00. For example, [the plaintiff] repaid nearly $8,000.00 prior to default only to have SFSI assess an additional balance owed in excess of $28,000.00, which would equal to a default interest rate exceeding 130%.”
A reasonable consumer, the lawsuit claims, would not recognize or understand that the defendant’s inherent business practice is “to present the information in a deceptive and rapid manor that is intended to disguise the terms of the loans.”