New York Sues To Stop Illegal Payday Lending Scheme
Attorney General Spitzer today sued a Delaware-based bank and two out-of-state financial companies for operating a "payday" loan scam that saddles middle to low income New Yorkers with huge debt. New York City Councilman Leroy Comrie, NEDAP Executive Director Sarah Ludwig, and a coalition of consumer organizations joined Spitzer in warning consumers against these high-interest loans that violate consumer protection laws.
"This modern day loan sharking scheme exploits vulnerable consumers with offers of quick cash, when in reality, the exorbitant, illegal interest rates trap people in a cycle of long-term debt," Spitzer said. "We will take steps to educate consumers and prevent them from being further victimized."
"Payday loans" are the fastest growing segment of the fringe banking economy, generating nearly $45 billion in revenue last year. These small-dollar ($100-500) loans, which the borrower promises to repay out of his or her next paycheck or income, generally carry an interest rate of 500 percent, on an annualized basis. New York State law prohibits charging over 16% for such loans.
Unscrupulous lenders exploit working people, the elderly, and members of minority communities with unconscionable loan terms that trap borrowers into spiraling debt.
The Attorney Generals complaint names Cashnet, Inc, based in Elkins Park, Pennsylvania; TC Services Corporation d/b/a Telecash, based in Bala Cynwyd, Pennsylvania; and County Bank of Rehoboth Beach, Delaware in an elaborate scheme to circumvent New York State laws.
According to the complaint, Cashnet, and Telecash used County Bank as a vehicle through which they make payday loans to New York consumers. A state-chartered bank like County Bank can charge interest throughout the United States at any rate permitted in its home state; Delaware's law does not limit the amount of interest its banks can charge. The Attorney Generals investigation uncovered that County Bank was the lender in name only. Both Cashnet and Telecash provided the capital to market, advertise, originate, service and collect the payday loans. Cashnet and Telecash also charge high fees for extending repayment dates for those consumers who cannot afford to repay the short term payday loan on its original due date.
Spitzers complaint seeks injunctive relief, restitution, damages, penalties, and costs against
Spitzers actions were cited by the National Association for the Advancement of Colored People, which has been a national leader in pushing for reform against payday lending practices. Attached is a statement of support.
"The ease and speed with which payday loans can be obtained belie the often devastating consequences of these exploitive loan practices," said City Council Majority Whip Leroy Comrie. "These payday companies are preying on the disenfranchised, lower middle-income and senior residents of our city by usurping our states usury caps and creating a revolving door of debt. This form of legalized larceny is predatory in nature and will not be tolerated by Attorney General Spitzer or the City Council."
"Payday lenders recently burst onto the New York scene, plastering the subway and radio with ads that offer fast cash, without disclosing the shockingly high interest rates of these short term loans. They prey on working people and government benefits recipients who are struggling to make ends meet from week to week," stated Sarah Ludwig, Executive Director of the Neighborhood Economic Development Advocacy Project. "Our message is simple: Payday lenders are not welcome in our state!"
Spitzers suit was also praised by the AARP (formerly known as the American Association of Retired Persons), the Consumer Federation of America and Consumers Union.
The case is being handled by Assistant Attorney General Carrie Cohen of the Civil Rights Bureau, under the supervision of Bureau Chief Dennis Parker, and by Mark Fleischer of the Consumer Frauds and Protection Bureau under supervision of Bureau Chief Thomas Conway.
Individuals who believe they have been victimized by a payday loan scam are encouraged to contact the Attorney Generals office at 800-771-7755.
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