faces “Rent-a-Tribe” class action lawsuit in Illinois over payday loan interest rates

A proposed class action lawsuit alleges that parties behind online payday lender unlawfully attempted to circumvent Illinois usury laws by claiming to be affiliated with a small Native American tribe.

The 24-page lawsuit charges that in reality,’s alleged affiliation with the Elem Indian Colony of the Pomo Indians is merely a “front” for “an illegal loan scheme,” by which the defendants, shielded by the Tribe’s Sovereign Immunity, have extended loans to Illinois residents at interest rates in excess of 700% per annum, well above the state’s 9% interest cap for lenders non-banking and unlicensed.

According to the case, First Loan’s web server IP address places the company in a physical location in Oregon, more than 1,000 miles from the Elem Tribe reservation in Clear Lake, California. The lawsuit says First Loan never held any type of consumer loan 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 lending websites, including First Loan and, claim to be owned and operated by “small, isolated and economically poor Native American tribes.” As the lawsuit says, Chao, his companies, and other non-tribal investors, under an arrangement known as the “rent-a-tribe” program, are profiting from the “desperation of these tribes” by offering a modest payment in return for the tribes claiming to own the payday loan operations.

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

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

“In reality, the Tribal Lending Entity is merely a ‘front’ for an illegal lending system. All substantial aspects of the payday loan operation – financing, marketing, loan origination, underwriting, loan administration, electronic funds transfers and collection – are carried out by individuals and entities that are not affiliated with the tribe. native american. In exchange for using the tribe’s name, those operating the payday loan system pay the cooperating tribe a fraction of the revenue generated, almost always in the single digits.

Plaintiff, a resident of McHenry, Illinois, claims to have received a loan from First Loan at a disclosed annual interest rate of 777.85%. The lawsuit says the consumer, after repaying the first loan, received another at an annual rate of 727.84%.

The lawsuit seeks to cover all consumers with addresses in Illinois who are issued a loan in the name of “First Loan” at more than nine percent interest and:

  • the loan has not been fully repaid;
  • the loan is still outstanding or has been repaid within the last two years; or
  • the loan was made within the last four years.

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

The complaint alleges that the defendants violated the Illinois Interest Act, the Illinois Predatory Loan Prevention Act, the Illinois Consumer Fraud Act and the Racketeer Influenced and Corrupt Organizations Act (RICO).

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James S. Joseph