FirstLoan.com Facing ‘Rent-a-Tribe’ Class Action in Illinois Over Payday Loan Interest Rates

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A proposed class action alleges the parties behind online payday lender FirstLoan.com have illegally tried to skirt Illinois usury laws by claiming to be affiliated with a small Native American tribe. 

The 24-page lawsuit charges that in reality, FirstLoan.com’s purported affiliation with the Elem Indian Colony of Pomo Indians is merely a “front” for “an illegal lending scheme,” whereby the defendants, shielded by the tribe’s sovereign immunity, have extended loans to Illinois residents at interest rates in excess of 700 percent annually, far above the state’s nine-percent interest cap for non-bank, unlicensed lenders.

According to the case, First Loan’s web server’s IP address puts the company at a physical location in Oregon, more than 1,000 miles from the Elem Tribe’s reservation in Clear Lake, California. The suit says First Loan has never held any type of consumer lending license from the Illinois Department of Financial and Professional Regulation or a bank or credit union charter. 

The complaint also alleges that all of defendant Stanley Chao’s online loan websites, including First Loan and CometLoans.com, purport to be owned and operated by “tiny, remote, economically impoverished Native American tribes.” As the lawsuit tells it, Chao, his companies and other non-tribal investors, in an arrangement that’s come to be known as a “rent-a-tribe” scheme, take advantage of “these tribes’ desperation” by offering modest payment in exchange for the tribes claiming to own the payday lending operations. 

“Despite claims that the Elem Tribe owns First Loan, the true beneficial owners are Chao, his companies, and his non-tribal investors,” the case alleges.  

The case estimates that the Elem Tribe receives less than two percent of loan revenues in exchange for being a “straw owner” of FirstLoan.com and, “more importantly, providing a veil of sovereign immunity.” From the complaint: 

“In reality, the tribal lending entity is a mere ‘front’ for an illegal lending scheme. All substantive aspects of the payday lending operation – funding, marketing, loan origination, underwriting, loan servicing, electronic funds transfers, and collections – are performed by individuals and entities that are unaffiliated with the Native American tribe. In exchange for the use of the tribe’s name, those operating the payday lending scheme pay the cooperating tribe a fraction of the revenues generated, almost always in the single digits.” 

The plaintiff, a McHenry, Illinois resident, claims to have received a loan from First Loan at a disclosed annual interest rate of 777.85 percent. The suit says the consumer, after paying off the first loan, received another at an annual rate of 727.84 percent. 

The suit looks to cover all consumers with Illinois addresses to whom a loan was made in the name of “First Loan” at more than nine percent interest and:

• the loan has not been paid in full;
• the loan is still outstanding or was paid within the past two years; or
• the loan was made within the past four years. 

The case also seeks to represent anyone with an Illinois address to whom a loan was made in the name of “First Loan” at more than 36 percent interest on or after March 23, 2021. 

The complaint alleges the defendants have run afoul of the Illinois Interest Act, Illinois Predatory Loan Prevention Act, Illinois Consumer Fraud Act and federal Racketeer Influenced and Corrupt Organizations Act (RICO).

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