New York State Attorney General Eliot Spitzer has sued a Delaware-based bank and two out-of-state financial companies for operating a "payday" loan scam that saddles middle to low income New Yorkers with huge debt. Supporters of the enforcement proceedings joined Spitzer in warning consumers against these high-interest loans that violate consumer protection laws.
"This modern day âloan sharking' scheme exploits vulnerable consumers with offers of quick cash, when in reality, the exorbitant, illegal interest rates trap people in a cycle of long-term debt," Spitzer said. "We will take steps to educate consumers and prevent them from being further victimized."
"Payday loans" are the fastest growing segment of the fringe banking economy, generating nearly $45 billion in revenue last year. These small-dollar ($100-500) loans, which the borrower promises to repay out of his or her next paycheck or income, generally carry an interest rate of 500 percent, on an annualized basis. New York State law prohibits charging over 16% for such loans.
Unscrupulous lenders exploit working people, the elderly, and members of minority communities with unconscionable loan terms that trap borrowers into spiraling debt.
The Attorney General's complaint names Cashnet, Inc, based in Elkins Park, Pennsylvania; TC Services Corporation d/b/a Telecash, based in Bala Cynwyd, Pennsylvania; and County Bank of Rehoboth Beach, Delaware in an elaborate scheme to circumvent New York State laws.
According to the complaint, Cashnet, and Telecash used County Bank as a vehicle through which they make payday loans to New York consumers. A state-chartered bank like County Bank can charge interest throughout the United States at any rate permitted in its home state; Delaware's law does not limit the amount of interest its banks can charge. The Attorney General's investigation uncovered that County Bank was the lender in name only. Both Cashnet and Telecash provided the capital to market, advertise, originate, service and collect the payday loans. Cashnet and Telecash also charge high fees for extending repayment dates for those consumers who cannot afford to repay the short term payday loan on its original due date.
Spitzer's complaint seeks injunctive relief, restitution, damages, penalties, and costs against