“We’ve fought payday lending at every turn and now we’re putting this industry out of business here in North Carolina,” said Cooper. “These payday lenders thought they’d found a way around North Carolina law. Now we’re showing them the way out of our state.”
Under consent agreements announced today, Check Into Cash, Check ’n Go and First American Cash Advance will stop making payday and other unauthorized loans in North Carolina, will stop collecting interest and other fees on existing loans, and will pay a total of $700,000 to fund efforts to help consumers impacted by payday loans.
These companies join the largest payday lender in North Carolina, Advance America, which stopped making loans in September.
“I am pleased that these companies have agreed to resolve this dispute and comply with North Carolina law,” said Commissioner of Banks Joseph A. Smith, Jr.
The funds will go to non-profits to help their efforts to provide credit counseling and financial literacy to North Carolinians who might have turned to payday loans. Consumer Credit Counseling Services of Western NC, Fayetteville, Charlotte, Gaston County, Greater Greensboro, Triangle Family Services, Forsyth County, and Carolina Foothills will receive a total of $480,000. The NAACP of North Carolina, Community Reinvestment Association of North Carolina (CRA-NC), the NC Fair Housing Center, and the Institute for Minority Development will each receive $55,000. (See attached chart for more details.)
After the agreement’s effective dates lenders have between 30 and 120 days to collect only the principal balance on any outstanding loans. That means that North Carolina consumers who took out payday loans from these companies will not have to continue to pay what often works out to be more than 400 percent interest on the money they borrowed.
Check Into Cash and Check ’n Go plan to leave the state, while First American plans to try to get licensed as a consumer finance lender and would have to abide by state laws that limit interest rates on small loans.
Cooper has a long history of battling unfair and illegal payday loans in North Carolina (see attached list). The Attorney General’s Office and the State Commissioner of Banks have worked together on the issue of payday lending since state legislators allowed North Carolina’s payday lending law to expire after four years on August 31, 2001.
These latest developments follow a decision in December 2005 by Commissioner Smith against Advance America, the nation’s largest payday lender. Cooper’s office prosecuted the case against Advance America, contending that the payday lender used a rent-a-charter relationship with an out-of-state bank to hide its illegal loans. Advance America has appealed that decision but is no longer making payday loans in North Carolina.
Cooper believes that Check Into Cash, Check ’n Go and First American have used similar relationships with out-of-state banks to skirt North Carolina laws that cap interest rates on small loans. Cooper alleges that Check Into Cash used its relationship with American Bank & Trust of Wessington, South Dakota and other out-of-state banks, First American used Community State Bank of Milbank, South Dakota and Check ’n Go used First Bank of Delaware to try to evade the law.
Consumers who took out a typical payday loan of $300 from one of these companies were required to repay the loan within two weeks plus around $60 in interest, more than 400 percent interest when computed as an annual percentage rate. People who didn’t have the money after two weeks often wound up taking out another payday loan to cover repayment of the original loan. The companies also made installment loans at rates over 300 percent.
State law allows a maximum rate of 16 percent on loans under $16,000 except that licensed consumer finance lenders can charge up to 36 percent on loans under $600.
“A payday loan may sound like the solution to someone facing unexpected bills, but once you get sucked in it’s difficult to escape and your debts snowball quickly,” Cooper said. “People need access to short-term emergency loans, but with fair rates and more time to repay the loan.”
Consumer education funded by Attorney General Cooper's payday lending agreements
Timeline of battle against payday lending in North Carolina