A proposed class action claims LDF Holdings, LLC and Midaaswi, LLC have operated an illegal lending scheme whereby they’ve charged Illinois residents usurious interest rates for small loans while purporting to be associated with a Native American tribe to skirt liability.
The 27-page lawsuit alleges LDF and Midaaswi, who does business as National Small Loan, in what’s come to be known as a “rent-a-tribe” scheme, have exploited the tribal immunity of the Lac du Flambeau Band of Lake Superior Chippewa Indians in exchange for providing a small percentage of revenues from the alleged payday lending operation.
According to the case, the defendants’ payday lending business is plainly unlawful given it’s far from being operated by a Native American tribe and has caused Illinois residents to be hit with interest rates in excess of 500 percent. The tribal lending entity, the suit alleges, is no more than “a façade for an illegal lending scheme” operated entirely by non-tribal businesses who cannot claim sovereign immunity in defense of their usurious conduct.
“Where non-tribal individuals and entities control and manage the substantive lending functions, provide the lending capital necessary to support the operation, and bear the economic risk associated with the operation, they are not in fact ‘operated’ by Native American tribes and, therefore, are not shielded by sovereign immunity,” the complaint attests.
LDF Holdings and Midaaswi, who offer small loans at triple-digit interest rates through the website nationalsmallloan.com, have operated through a complex network of shell companies in order to shield themselves from liability under state usury laws, the case alleges. Per the lawsuit, the defendants have orchestrated an “elaborate charade” through which they’ve claimed to be operated by the Lac du Flambeau Band of Lake Superior Chippewa Indians, who are described in the complaint as “a small, isolated, and economically depressed Indian Tribe located in rural Wisconsin.”
Strapped for cash, the suit says, the tribe agreed sometime in 2013 to allow the defendants to use its name—and associated sovereign immunity—in exchange for a small percentage of their profits, the lawsuit alleges. According to the suit, the tribe ultimately “became one of the most prolific suppliers in the rental market for sovereign immunity,” entering into so-called “rent-a-tribe” agreements with over 50 non-tribal lenders who each gave the tribe between one and three percent of revenues from their payday loans. The lawsuit notes, however, that although the tribe claims to operate a multitude of payday lending websites and transact “tens of millions of dollars in total revenues” each month amid a business that would require “thousands of employees,” each of the websites purports to operate out of the same second-floor office above a cigarette store in Lac du Flambeau, Wisconsin.
According to the suit, the defendants and their ring of associated entities and individuals essentially operate independently of the Lac du Flambeau tribe and are far from being allowed to claim sovereign immunity as an “arm of the tribe.” Moreover, even if sovereign immunity could be legitimately invoked, this defense “still does not turn an otherwise illegal loan into a legal one,” the lawsuit additionally contends. According to the suit, the defendants’ loans, which far exceed Illinois usury limits of as low as nine percent interest, are void and unenforceable.
“At no time have Defendants had a license from the Illinois Department of Financial and Professional Regulation or a state or federal banking or credit union charter, entitling [them] to make loans to Illinois residents at more than 9% interest,” the complaint stresses. “Defendants nevertheless advertise and make loans to Illinois residents at rates greatly exceeding 9%.”
The case adds that the Illinois Predatory Loan Prevention Act, effective March 23, 2021, makes it illegal for anyone other than a bank to offer a loan to a state resident at annual percentage rates in excess of 36 percent.
The plaintiff, a Pecatonica, Illinois resident, claims the defendants granted her a loan of $500 at an interest rate of 704.63 percent. The lawsuit argues that the loans made to the plaintiff and other Illinois borrowers were illegal and seeks an injunction preventing the defendants from “taking any action to collect the void debts.”
The full complaint can be read below.
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