Chicago, ILOut of control payday loans can feel like a kind of purgatory—where borrowers swim as fast as they can but still find the shoreline getting farther and farther away. In the state of Illinois, the attorney general's website specifically warns consumers about payday loans and advises them to consider all other possible options for entering into a payday loan agreement. "Although they provide quick credit, payday loans are extremely expensive and will only worsen your situation in the long run," reads the website.
But sometimes people are desperate for fast cash and that was Kevin Johnson's situation when he borrowed $700 last year. When Johnson was having trouble making his payments, Americash offered him a second loan for $400 in January 2009, to help make the payments. Afraid for his credit rating, he accepted.
Twelve months later, even though he has paid back more than double what he originally borrowed he still owes Americash another $2,567—bringing the total cost of borrowing to well over $3,000 at an annual interest rate of about 350 percent.
Enter Tom Geoghegan; a Harvard educated lawyer, author and well-known critic of the payday loan companies and the slippery slopes of the more established banking institutions.
"Payday lenders are catastrophically harmful to all kinds of people including our plaintiff Kevin Johnson," says Geoghegan. "They are also the outer edge of the more extreme examples of abusive practices, hidden fees and surprise changes in interest rates that even more respectable lending facilities engage in."
Geoghegan's personal view of the boot neck tactics of payday lenders is right in line with the state's attorney general's office. In fact, attorney Geoghegan and others critical of payday loans were instrumental in the Illinois Payday Loan Reform Act (PLRA) that was supposed to protect people like Kevin Johnson from getting in too deep by limiting loans to terms of 120 days.
Geoghegan now represents Kevin Johnson (and, as the lawyers say, similarly situated individuals too numerous to name) in a state-wide class action suit that alleges, among other things, that Americash and other payday lenders have simply adjusted their terms to skirt the law. In Johnson's case, he was required to repay the loan in 24 installments over a 12-month period. As stated in the complaint filed by Geoghegan "this is a technical and not essential change in the nature of the transaction."
The 35-page class action complaint filed recently in Chicago alleges that Americash is in violation of the PLRA and the Consumer Fraud and Deceptive Business Practices Act.
"The fact that Americash has changed the loan terms to a loan greater than 120 days doesn't make it any less a Payday Loan; in fact it makes it a more abusive loan because they are by definition for very short term needs at very high interest rates. Americash is extending it to unconscionable lengths locking people into these very high interest rates," says Geoghegan.
Geoghegan has to be one of America's most interesting lawyers. For starters, he doesn't have a website. He's thinking about getting one, though. He recently ran unsuccessfully for Congress and he has a lot to say about the damage that high interest rates and unscrupulous financial institutions do to the economy.
"We are all worried about the fact that the rate on government bonds may go up by a half or a third of one percent and how destructive that will be to the economy and taxpayers," Geoghegan. "So if we are agonizing about those tiny fluctuations that we pay to our foreign creditors imagine what it is like for the average citizen paying 25 percent on a credit card or 300 percent on a payday loan."
Tom Geoghegan is a Harvard-educated lawyer and partner at the law firm of Despres, Schwartz, and Geoghegan. Geoghegan is an author and former journalist for The New Republic who works and lives in Chicago. Most of Geoghegan's work is devoted to cases that involve the public interest. His firm has no website, but they are considering getting one.