The investigation began after a complaint from someone who borrowed $300. The loan in question fell under an Illinois provision that capped annual finance charges at 36 percent.
State investigators found serious problems with the transaction. For one thing, the loan was written with a six-day term, which did not give the borrower sufficient time to repay the loan. Furthermore, the fees on the loan exceeded the $15.50 per $100 allowed under Illinois law.
In addition, the annual percentage rate on the loan interest rate came to 2,190 percent, as the borrower was required to repay the $300 loan plus a $90 finance charge just six days after the loan had been originated. According to the Illinois agency charged with loan oversight, Global Payday then continued to violate the borrower's rights by sending her e-mail warnings and making phone calls asserting that her account was delinquent and demanding payment.
The subsequent fine cost Global Payday $234,000. All well and good, right? Not necessarily. According to the state's notice of order, Global Payday is located in Jenkstown, Penn., and Salt Lake City--not in Illinois. By offering loans over the Internet, the company is making such loan opportunities available to potential borrowers in all of the states, not just Illinois.
While Illinois might want to flex its muscles to protect its citizens in regulating payday loans in certain ways, other states may want to impose different legal requirements. In so doing, a company like Global Payday that seeks to engage in Internet business across state lines might be nagged by uncertainty when it comes to figuring out cross-border legal compliance.
Constitutional arguments could be made that state efforts to regulate e-business that, in part, comes within their borders improperly burdens interstate commerce. The argument could be made that only the federal government has authority uniformly to regulate. Such arguments have been made in other contexts. But there remains much uncertainty. Coming months--and years--will likely determine how much authority states truly will have when it comes to Internet regulation.