Consumers File Class Action Lawsuits Against Three of North Carolina’s Largest Payday Lenders

Lawsuits Charge Lenders with Exploiting Poor Consumers by Charging High Interest Rates up to 500 Percent

Consumer advocates compare companies that lend quick cash at high interest rates up to 500% to loan sharks.

Consumers filed a series of lawsuits on July 27, 2004 against three of North Carolina’s largest payday lenders – Advance America, Check into Cash, and Check ’N Go – alleging that the lenders exploit poor people by luring them into quick loans that carry exorbitantly high interest rates up to 500 percent. The three lawsuits were filed in New Hanover County Superior Court by a team of consumer advocates including three public interest organizations – North Carolina Justice Center (NCJC) in Raleigh, NC, Financial Protection Law Center (FPLC) in Wilmington, NC, and Trial Lawyers for Public Justice (TLPJ) in Washington, D.C. – as well as a number of private lawyers.

The consumer complaints allege that since 1997, these companies have been targeting low- and moderate-income North Carolina families by offering a check cashing service known as “deferred-deposit” or “payday” loans. These loans are marketed as a quick, easy way to obtain cash without undergoing a credit check.

“Companies like Advance America prey on consumers with offers of quick cash, but the exorbitant interest rates trap people in a cycle of long-term debt,” said co-counsel Carlene McNulty of NCJC. 

To get a payday loan, a customer writes a check for the amount borrowed (usually between $200 and $500), which the payday lender “holds” until the customer’s next pay day, usually two weeks later. The customer is charged a high fee for this loan. In a typical transaction involving a loan for $425, for example, a customer writes a check for $500, which includes a $75 fee. On the next pay day, the customer can either pay $500 to get the check back, let the check clear the bank, or pay $75 to extend the loan for another two weeks. The fees for many consumers translate into annual interest rates of more than 500%. Most borrowers cannot afford to redeem their checks and are forced to choose the “roll-over” option. 

“Too often the borrower ends up in a cycle of debt, repeatedly rolling over the original loan to a point where the accumulated fees and interest far exceed the amount borrowed,” said co-counsel Mal Maynard of FPLC.

In 1997, payday lenders sought and received a special interest law that permitted them to charge interest rates far above the normal North Carolina usury rate. However, the law expired on August 31, 2001, thus making the practice illegal under state law. Since then, payday lenders have entered into affiliations with out-of-state banks in efforts to evade the law. They are claiming a legal loophole allows them to continue making these high interest loans to unsuspecting consumers in North Carolina. 

Each of the payday companies being sued claims that its affiliation with an out-of-state bank allows it to make these loans. The consumer attorneys who filed the lawsuits disagree. The payday lending companies are the real lenders in the transactions and control the money and the collection process. The payday lenders’ “rent-a-charter” practice has been criticized by the Office of the Comptroller of the Currency, which is the federal agency that regulates national banks.

“These out-of-state banks provide cover, for a fee, so that payday lenders can skirt state consumer protection laws,” said TLPJ staff attorney F. Paul Bland, Jr., co-counsel in the cases.  “I see no difference between a loan shark and a corporation that lures financially strapped and desperate people into taking out quick loans with interest rates as high as 500 percent.”

State laws require loan companies to be licensed and permit only a 36 percent interest rate on loans under $600. State law also prohibits licensed check cashing businesses, such as Advance America and the other companies being sued, from making loans.

Advance America has about 114 stores in North Carolina, and reports revenues of more than $30 million a year. Check ’N Go operates almost 60 stores in the state, and gets revenues of about $14 million. Check into Cash has more than 40 stores in North Carolina, and also reports revenues of about $14 million.

In addition to the three public interest organizations, the lawyers for the exploited consumers in these cases include J. Jerome Hartzell of Hartzell & Whiteman in Raleigh, NC, Mona Lisa Wallace and John Hughes of Wallace & Graham in Salisbury, NC, Stephen Gardner of Dallas, and Richard Fisher of Cleveland, TN. The complaints in McQuillan v. Check ’N Go of North Carolina, Inc., Hager v. Check into Cash of North Carolina, Inc., and Kucan v. Advance America are posted on TLPJ’s web site, www.publicjustice.net.

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