Q: What can i do? Is this illegal? Is he commiting fraud?

A: If someone is lending money with an interest charge that doesn't decrease the principal loan amount, it's important to first examine the terms of the contract you signed. Ensure that the interest rate and terms of repayment are clearly stated and understood. If the terms are not clear or seem unfair, there might be grounds to question the legality of the contract.

Charging excessive interest rates can potentially be considered usury, which is illegal in many states, including California. The legal limit for interest rates depends on the nature of the lender and the type of loan. In California, the general legal limit is 10% per annum for personal, family, or household purposes.

Regarding the lender's tax obligations and citizenship status, whether or not they are a U.S. citizen does not directly affect the legality of the loan. However, not reporting income, including income from lending money, to the IRS can be considered tax evasion, which is illegal.

If you believe that the terms of your loan are unfair or that the lender is engaging in illegal activities, it would be wise to seek legal advice. A lawyer can help you understand your rights and obligations under the contract and can provide guidance on how to proceed, including whether you have grounds to challenge the loan terms or report the lender's activities to the authorities.

Remember, handling this situation legally is crucial to protect your interests and to ensure that any action you take is within the bounds of the law.