Court Opinion

ID: 767536
Source: CourtListenerOpinion
Date Created: 2012-04-18 08:36:16+00
Date Added: 2024-06-11T17:55:29.138022
License: Public Domain

202 F.3d 998 (7th Cir. 2000)
William D. Hahn,    Plaintiff-Appellant,v.McKenzie Check Advance of Illinois, llc,  doing business as National Cash Advance,    Defendant-Appellee.
No. 99-3346
In the  United States Court of Appeals  For the Seventh Circuit
Submitted January 5, 2000Decided February 2, 2000

Appeal from the United States District Court  for the Central District of Illinois.  No. 99-3103--Richard Mills, Judge.
Before Bauer, Easterbrook, and Kanne, Circuit Judges.
Per Curiam.

1
A "payday loan" is a short-term small  loan handled with a minimum of paperwork; the  loan agreement is a single sheet of paper, and  the borrower receives cash within minutes of  applying. The rate of interest is high, and the  lender typically requires the borrower to write  a check that can be submitted for payment after  the borrower's next scheduled payday. We held in  Smith v. Cash Store Management, Inc., 195 F.3d 325, 328-31 (7th Cir. 1999), that a lender does  not violate the Truth in Lending Act, 15 U.S.C.  sec.sec. 1601-77, or its implementing  regulations, by referring to the post-dated check  as "security." McKenzie Check Advance, another  payday lender, likewise refers to the check as  "security," and its form has been challenged  solely on that account. The district court  dismissed the complaint for failure to state a  claim on which relief may be granted. 61 F. Supp. 2d 813 (C.D. Ill. 1999). We issued an order  seeking the parties' views on the question  whether Smith controls this appeal. McKenzie  replied that it does; plaintiff William Hahn  insisted that it does not.

2
Smith holds that a post-dated check properly  may be called "security" because it gives the  lender rights in addition to those provided by  the loan agreement itself. We observed, among  other things, that "the holder of the check has  available remedies created by the Illinois bad  check statute, 810 ILCS 5/3-806, which mandates  that if a check is not honored, the drawer shall  be liable for interest and costs and expenses  incurred in the collection of the amount of the  check." 195 F.3d at 330. Hahn sees this as an  opening, for McKenzie's loan form itself provides  not only that a dishonored check will lead to an  additional fee of $25 but also that the borrower  must pay any attorneys' fees necessary to  collect. Because the note provides these  remedies, Hahn insists, the check adds nothing  and may not be called "security."

3
Our opinion in Smith anticipated such an  argument and supplies its answer: the check  creates remedies and entitlements independent of  the note. That the two are similar does not  destroy their independence. "Upon default on the  loan agreement, [the lender] would get use of the  check, along with the rights that go with it.  [The lender] could simply negotiate it to someone  else. [The lender] could take it to the bank and  present it for payment. If denied, [the lender]  could pursue bad check litigation. Additional  value is created through these rights because  [the lender] need not renegotiate or litigate the  loan agreement as its only avenue of recourse."  Ibid. Thus provisions in a loan agreement  duplicating the legal remedies for a dishonored  check do not make the check irrelevant, and  referring to it as"security" does not violate  the Truth in Lending Act.

Affirmed