EAST ST. LOUIS – Online lender Stanley Chao of Orlando collects illegal interest under a false cover of tribal immunity, Katherine Schnefke of Edwardsville alleges at U.S. district court.
Schnefke borrowed $1,500 from Chao’s First Loan website in 2021, and agreed to pay it off at $448.27 every two weeks for a year.
She sued Chao, First Loan, capital provider NP Finance, and up to ten John Does.
Her counsel, Daniel Edelman of Chicago, proposed a class action under state laws on interest, predatory loans, and consumer fraud, as well as under federal racketeering law.
Edelman claimed Chao is beneficial owner of many online lending websites.
He provided an address for First Loan in Lower Lake, California.
He claimed First Loan makes loans by transfer into bank accounts but offers them at annual percentage rates of 700% and higher.
“First Loan currently claims to be operated by the Elem Indian Colony of Pomo Indians and a subsidiary of EIC Enterprises, an instrumentality of the colony,” he wrote.
The tribe is allegedly based near Clearlake, California.
Edelman claimed First Loan has marginal economic activities due to its small size, remote location, and lack of natural resources.
He claimed Chao takes advantage of the tribe's desperation by paying them modest amounts in exchange for their claiming ownership of his operations.
Edelman claimed the true beneficial owners are Chao and his investors.
“The Elem Tribe receives less than 2% of loan revenues for being the straw owner and providing a veil of sovereign immunity,” he wrote.
He called the arrangement “rent-a-tribe.”
Edelman claimed sovereign immunity doesn’t turn an illegal loan into a legal one.
He added that First Loan at no time held a lending license from the state department of financial and professional regulation.
“Under Illinois law, First Loan was therefore not allowed to make loans to Illinois consumers at rates exceeding 9%,” he wrote.
“Under the Predatory Loan Prevention Act, even a licensed lender may not charge more than 36% interest to an Illinois resident,” he added.
“The Consumer Installment Loan Act makes it a felony to make loans covered by the Act without a license,” he continued.
“The Illinois criminal usury statute defines the making of a loan by unlicensed persons at more than 20% interest as a felony,” he concluded.
Edelman’s complaint also sought damages from an unknown transaction processor for an automated clearing house.
He claimed Schnefke could ascertain the processor’s identity through discovery since it uses a unique payment and deposit identification number.
He proposed to certify three classes of individuals with Illinois addresses.
One would consist of those to whom a loan was made at more than 9% interest, which loan is outstanding or was paid two years prior to the filing of suit.
One would consist of those to whom a loan was made at more than 36% interest, which loan was made on or after March 23, 2021, effective date of the predatory loan law.
One would consist of those to whom a loan was made at more than 18% interest, which loan was made on or after a date four years prior to the filing of suit.
Tara Goodwin and Matthew Goldstein of Chicago also represent Schnefke.
The clerk randomly assigned Magistrate Judge Mark Beatty.