This class action involves a payday loan scheme that combines interest rates in excess of 400%, a snarl of interlocking companies, and a “rent-a-tribe” agreement that attempts to use Native American tribal rights as a shield against federal and state usury laws. The name of defendant Kenneth Rees as well as the general outline of the case will be familiar to those who know of the other class action filed against Plain Green and Great Plains a couple of months after this one.
The class for this action, the Virginia RICO Class, is defined as all Virginia residents who had a loan with Plain Green or Great Plains where the loan was originated or any payment was made on or after May 19, 2013.
Virginia state law establishes a 12% cap on interest rates and specifies that no person may charge higher interest on a loan unless they are licensed by the state. Licensing rules attempt to further protect consumers by requiring that licensees have certain amount in liquid assets as well as the character, experience, and knowledge to operate a responsible business.
According to the complaint, Rees attempted to get around these laws by making “rent-a-tribe” agreements with the Chippewa-Cree and Otoe-Missouria tribes and setting up two lending companies, Plain Green, LLC and Great Plains, LLC to operate respectively in their names, hoping to exploit their sovereign immunity rights. Under the cover of these “tribal” companies, the complaint says, Rees and the other defendants then each took a role in making loans with annual percentage rates of from 118% to at least 448%.
This constitutes a conspiracy, the complaint alleges, that violates the Racketeer Influenced and Corrupt Organizations (RICO) Act.
In fact, the complaint claims, prior to this scheme, Rees and his companies were involved in a “rent-a-bank” scheme in which payday lenders who were not permitted to make loans in a certain state would evade these restrictions by partnering with a bank that could, with the bank acting as a conduit for the loans in exchange for a fee. However, the Federal Deposit and Insurance Corporation (FDIC) cracked down on “rent-a-bank” arrangements and virtually eliminated them by 2010.
In the “rent-a-tribe” scheme, the complaint says, the loans are made in the name of the “tribal” company, but the defendants market, fund, underwrite, and service the loans, then pay the tribe 4.5% of the cash revenue on the loans, reimbursed expenses, and advanced the tribe $50,000. The tribes therefore have little to do with providing or servicing the loans and they have no rights to the companies’ profits except the 4.5% fee.
The complaint alleges that defendants violated RICO laws as well as Virginia’s usury laws.
Under Virginia law, when lenders make loans without a license and charge excessive interest, the loans may be declared null and void, and the lender can no longer collect principal or interest. The complaint therefore also seeks a declaratory judgment that the loans made under this scheme are null and void.