Cashback Payday Loans has been barred from doing business in New York and has agreed to forgive loans that carried exorbitant rates and provide refunds to New Yorkers.
Attorney General Eliot Spitzer said the Nevada company had been making payday loans at annual interest rates of up to 400 percent. The action against Las Vegas-based Cashback Payday Loans, Inc. marks the third time this year Spitzer's office has acted to halt payday loan schemes.
"Payday lending can be the modern equivalent of loan sharking and is illegal in New York," Spitzer said. "My office will continue to take aggressive action to stop payday lenders from victimizing New York consumers."
Spitzer began an investigation of Cashback's operations after receiving a complaint from a consumer who, in order to avoid default on a $500 payday loan from Cashback, became stuck in a cycle of refinancing at annual interest rates of nearly 400 percent. Within three months of receiving the $500 loan, the consumer owed Cashback more than $900 in interest.
The probe revealed that Cashback -- which advertised "payday advances" over the Internet -- extended such loans to dozens of New York consumers in violation of state usury laws.
Under the settlement agreement, the company must contact all New Yorkers with open accounts and notify them that their loans will be discharged. Further, the company must pay refunds to past customers who were charged exorbitant interest rates. It must cease issuing illegal payday loans in New York immediately, and discontinue any other lending operations.
In the past year, Spitzer's office has taken action against two other payday lending schemes: New York Catalog Sales in Watertown; and County Bank of Rehobeth Beach, Del., along with its partners, Cashnet, Inc., and Telecash Co.
The goal of each of these actions is to halt illegal lending in New York, obtain court orders discharging the debts associated with such lending, and obtain restitution for injured consumers.
Payday loans are small, short term loans that are repayable on the borrower's next payday, usually by a post-dated check or by electronically withdrawing the money from the borrower's checking account. Annual interest on such loans often exceeds the maximum rate allowed in New York, which is currently 16 percent.
