The country's largest payday lender, Advance America, has agreed to pay $18.75 million to more than 140,000 North Carolina consumers under a proposed settlement agreement. The deal would resolve a 2004 class action lawsuit that accused the company of charging illegal fees and interest rates.
The company had already stopped lending in North Carolina as a result of an investigation action brought by the North Carolina Attorney General's Office and the North Carolina Office of the Commissioner of Banks. Advance America affiliates that signed the agreement operated 118 branch offices throughout the state.
"I have been closely monitoring a lot of the consumer protection litigation against payday lenders around the country," said Public Justice Senior Attorney Paul Bland, one of the plaintiffs' lawyers, "and as far as I am aware, this is by far the largest settlement that any class of consumers has won from any payday lender in the United States. It is the single biggest achievement on behalf of consumers against payday lenders that I have seen in any private lawsuit in the U.S."
In the hole
Complaints about Advance America have been pouring in to ConsumerAffairs.com from all over the country for years. Gwen of Hayes, VA, says when she borrowed $700, she was told it the loan would cost her no more than $900 to pay back in monthly payments. "Got my first statement due, $50," she writes. "I really appreciated that but the next payment due, $187.50. Really confused at this time. Next bill $435." The bottom line, she says is, "They will be getting 3/4 of my check; that leaves nothing for other bills or living expenses."
"When you borrow money there is a fee every month of $149.95 and a finance charge $2.21 no matter what amount of money you borrow," writes Nancy from Franklin, PA. "These amounts do not go towards the money you borrowed. I paid the fee for three months plus money down on my loan of $500.00. I have statements stating I still owe $269.02."
So-called "payday loans" are short-term loans or cash advances, usually for a period of 14 days, secured by a post-dated check for the full amount of the loan plus interest or other fees. Payday loans typically require triple digit interest rates.
The class representatives in Kucan v. Advance America -- the North Carolina suit -- obtained loans from Advance America with annual percentage rates exceeding 450 percent. North Carolina law caps interest for that type of loan at 36 percent.
"We are pleased that Advance America has agreed to compensate North Carolina consumers who have been adversely affected by those practices," said Carlene McNulty of the North Carolina Justice Center in Raleigh, one of the attorneys representing the plaintiffs. "It's a model we encourage -- to not only abandon bad practices but to try to make amends for them."
More to come
Attorneys say class action lawsuits against unscrupulous payday lenders will continue. Consumer representatives congratulated Advance America for taking this big step to make things right with its customers, but also noted that several other North Carolina payday lenders are still using delay tactics and specious arguments about why their contracts immunize them from state law.
"There are still four major payday lenders in North Carolina who took tens of millions of dollars in illegal fees from consumers who continue to drag out consumer protection cases," said Mal Maynard of the Financial Protection Law Center in Wilmington, N.C., another attorney for the plaintiffs. "We are happy that Advance America has done the responsible thing, but we are not going to let down for one moment in the other cases." Maynard said the legal team will pursue litigation against the other payday lenders "until they do the right thing as well."
Class action lawsuits to recover funds for illegally charged and overcharged borrowers are part of a one-two punch against illegal payday lending practices in the state. North Carolina Attorney General Roy Cooper has been active in pursuing payday lenders and forcing them to cease operations in North Carolina. The Attorney General's Office previously reached an agreement with three other major payday lenders -- Check Into Cash, Check N Go and First American Cash Advance -- to stop making the illegal payday loans in the state.
Consumers who got a payday loan at Advance America or National Cash Advance in North Carolina on or after March 1, 2003, will receive payments as part of the proposed settlement. They will not need to file a claim to be able to participate in the settlement. If the settlement is approved, checks will be mailed to all class members who can be located, beginning in the first half of 2011.
In agreeing to pay consumer claims, Advance America has not admitted that it has violated any North Carolina law. Judge D. Jack Hooks, Jr. of New Hanover County Superior Court has been asked to approve the settlement.