MDG Issued Loans with Illegal Interest Rates in California, Class Action Claims

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Online lender MDG USA Inc. has charged California consumers illegal interest rates on loans extended to finance the purchase of a variety of merchandise, a proposed class action says. 

The eight-page suit alleges MDG has extended loans to California consumers at interest rates at or above 35 percent, well in excess of the state’s 10 percent interest rate cap.  

According to the lawsuit, MDG, which offers for sale an array of products as well as financing for those who cannot afford to pay up front, does not hold a license to extend consumer or commercial loans in California. The case alleges the lender is “apparently trying to circumvent the interest rate limitations imposed by California law” through a so-called “rent-a-bank” arrangement with Capital Community Bank, a state-chartered bank in Utah. 

“Under this ‘rent-a-bank’ arrangement, the loans that MDG offers and makes to California consumers are—on paper—purportedly ‘issued’ by the Utah bank,” the filing relays. “In fact, however, MDG itself markets the loans, underwrites the loans, originates the loans, services the loans (including billing and collection of payments), and contacts borrowers who miss payments.” 

The case contends that Capital Community Bank has “virtually no involvement” in the loans aside from its name appearing on loan documents. 

According to the complaint, MDG markets its loan activities primarily to low-income California residents, many of whom lack the cash or other credit resources to buy consumer goods outright. The lawsuit stresses that high interest rate loans trap many consumers in a cycle of debt. 

The suit looks to cover all individuals in California who, within the last four years, paid interest on a loan obtained from or marketed, underwritten or serviced by MDG.

The lawsuit was initially filed in Alameda County Superior Court on February 23 before being removed to California’s Northern District Court on March 25, 2022. 

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