Payday Lender Decision Could Have Wide-ranging Repercussions

(Last Updated On: January 10, 2006)

by Amy Kingsley

An NC Banking Commission decision stipulating that Advance America could no longer conduct business in the state could have repercussions for other payday lenders, all of which are watching to see if enforcement follows the judgment.

Business was brisk Jan. 6 at the High Point Road Check Into Cash, which offers $500 loans for a fee of $125. The manager said there were no plans to close that branch of the Tennessee-based lending company.

Before the NC Commissioner of Banking ruled on Dec. 22 that Advance America violated state predatory lending laws, the company operated three branches in Greensboro. They ceased lending operations on Sept. 15 but continued collecting outstanding loans. Now the company has also ended collection efforts.

‘“Our doors are closed in North Carolina,’” said attorney Saul Pilchen from the Washington, DC-based firm Skadden, Arps, Slate, Meagher & Flom.

Despite the setback, the company has filed a notice of appeal with the NC Banking Commission. A company in violation of state banking regulations according to Commissioner Joseph Smith can appeal to the full commission.

The dispute in the Advance America case was over whether financial institutions that offer short-term loans at high interest rates could dodge the state predatory lending law by partnering or renting a charter from out-of-state banks. Attorney General Roy Cooper argued against the lenders and the commission decided in his favor, saying that all financial services companies must abide by North Carolina law.

‘“What the decision says is that using the rent-a-charter model is illegal,’” said Noelle Talley, spokeswoman for the NC Department of Justice.

Thirty-seven states and the District of Columbia regulate payday lending. Banks based in South Dakota, Delaware or other states without such laws can partner with payday lenders and receive a portion of their fees. A statement by Cooper said he expected every payday lender to follow the law and would continue to fight those operating illegally.

North Carolina had a payday lending law on the books until 2001, when lawmakers allowed it to sunset. Since that time, Cooper has targeted several lenders including ACE Cash Express and Check into Kwik Kash.

Payday lenders typically require customers to show ID, a check stub as proof of income and a checkbook. Customers who meet these requirements can request 14-day loans. Interest rates on these loans can run as high as 400 percent. At Check Into Cash interest rates average 330 percent.

Payday lending advocates argue that industry regulation limits options for those with bad credit who need fast cash. Elimination of their service will simply foster more dependence on credit cards and pawnshops, according to press releases.

‘“Rather than working to ensure that consumers are appropriately protected in their credit choices, these so-called ‘consumer’ groups advocate eliminating options and, in doing so, drive consumers to more expensive, less desirable and even underground alternatives,’” said Vicki Woodward, the senior vice president of the Community Financial Services Association of America in a prepared statement.

Another payday lender operating in Greensboro is Check ‘n Go, which operates a shop on Bessemer Avenue. The shop is still open for business, despite partnering with the First Bank of Delaware. In the wake of Advance America closings, the company expressed its intention to continue operations and increased its marketing, said Yolanda McGill from the Center for Responsible Lending in Durham.

The lenders each follow different models that essentially add up to the same rent-a-charter method Advance America used, McGill said.

‘“I would think that it will take additional enforcement actions to take this interpretation home to other lenders,’” McGill said, ‘“and maybe our legislators will start paying attention to what is going on in enforcement.’”

In addition to Check ‘n Go and Check Into Cash, Payday Advance has offices in Greensboro that operate using the same type of lending scheme. All the businesses contacted expressed no intention of closing.

‘“Just because the order is given doesn’t mean that other shops are going to obey,’” McGill said. ‘“It’s going to require extra steps.’”

A study conducted by the Center for Responsible Lending in 2003 revealed the lucrative nature of such businesses. In three years between 2000 and 2003,