Internet payday lender Arrowhead Investments Inc. lost a class-action suit brought by almost 1,300 people in Wisconsin who say the lender didn’t comply with the Wisconsin Consumer Act and the federal Truth in Lending Act. The UW Law School’s Consumer Law Clinic filed the complaint and represented the plaintiffs.
Dane County Circuit Court Judge Maryann Sumi signed off on the settlement on Feb. 12, which will provide some relief to the folks who took out the loans, either by forgiving the loan or offering some compensation.
The lead plaintiff, Bonnie Bernhardt of Verona, Wis., took out a two-week loan of $300 from Arrowhead in March 2007, and was assigned a $90 finance charge. According to court documents, the APR on her loan was an eye-popping 782.14%.
When Bernhardt wasn’t able to pay off the loan in two weeks, Arrowhead automatically deducted a $90 refinance charge from her checking account. That sum wasn’t used to pay down the principal. Every two weeks a $90 fee was deducted from her account.
Arrowhead continued to deduct $90 fees from Bernhardt for about six months. By that time, she had paid $1,360 for a $300 loan.
While it was easy for Arrowhead to take money from Bernhardt, the company didn’t make it easy to pay off the loan. In fact, clients were required to contact the company in writing at least three days before the due date to let the company know he or she would pay off the loan in full.
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Sarah Carr, who leads the Consumer Law Clinic at UW Law School, said that Bernhardt’s case wasn’t the worst, either.
“We’re concerned about the unconscionable terms of these Internet payday loans and how terribly one-sided the agreement is,” Orr said.
The students at the clinic have notified the 1,270 participants in the case about the settlement.
