Cash America will be giving about 14,000 of its customers in Ohio refunds totaling an estimated $13.4 million after customers sued them, but now admits it made significant mistakes in its own legal documents. Cash America is the largest operator of pawn shops in the United States and operates a large network of payday loan locations throughout the country. It does business as Cashland in Ohio, and that division of the company was the subject of a court ruling Monday that said the company made payday loans attempting to exploit a loophole in state laws.
Cash America spokeswoman, Yolanda Walker said the court ruling was not the reason the company announced its plans to stop collection efforts and forgive outstanding balances for customers involved in lawsuits going back as far as 2008. According to Walker, “This is something we discovered in our own due diligence.”
Loopholes in State Laws?
The court decision says the company structured legal documents in an attempt to make the loans look like they conformed to the state’s mortgage lending laws, which allowed Cash America to charge higher interest rates when customers defaulted than they are allowed to charge for traditional payday loans. Cashland’s payday loans are governed by the Ohio’s Short Term Lending Act, which limits the annual percentage rate charged on short-term loans to 28%, but mortgages default rates are not subject to this limit.
An Industry Riddled with Questionable Practices
Payday lending has long been a practice that has come under fire by consumer protection advocates. The Better Business Bureau has received thousands of complaints from consumers across the country related to payday lenders and their questionable methods.
Estimates show that about 5.5% of American’s have used some type of payday loan service in the past five years despite warnings from advocacy groups to avoid them. These types of loans have been scrutinized by many organizations and in 2006 Congress went as far as banning lenders from offering payday loans to anyone in the military. The Federal Trade Commission issued a warning in 2008 that interest and fees on some of these loans could rack up to as much as 650% interest.
As if the interest rates weren’t bad enough, the entire payday loan industry has had a huge black eye for years for unscrupulous collection tactics and horrendous customer service. Add to this, the fact that these companies cater to customers who can least afford these high interest rate loans. Many of payday loan companies’ customers have poor, or no credit, cannot get conventional loans and are literally borrowing against paychecks they haven’t even received yet.
An Opportunistic Industry
The consumers who use payday loans are generally unfamiliar with how financial products work, as many of them don’t have bank accounts and have not built or maintained good credit. It is exactly their circumstances that allows payday loan companies prey on their need and lack of options to charge them ludicrously high interest for short term money. If it were up to many consumer advocates, the entire payday loan industry would not exist. As it is, the best most can hope for is more support from regulators and advocacy groups when they encounter problems with questionable lending practices.