Wednesday, May 12, 1999
MCALLEN - Attorney General John Cornyn today announced the filing of major lawsuits against "payday" lenders. The businesses named in the lawsuit are EZ Cash and Quick Cash of the Rio Grande Valley and Cash Today which has stores statewide including in Dallas, San Antonio, Fort Worth, Corpus Christi, and Austin. Payday loans are short term loans made by unlicensed lenders for up to several hundred dollars at extremely high interest rates ranging from 650% to 860% APR.
"Businesses that break the law will not be tolerated-especially those that prey upon people most in need of help," said General Cornyn.
Payday loan businesses usually lend to low income consumers who face short-term money problems, live paycheck-to-paycheck or do not have access to mainstream forms of credit. Although they lend small sums - usually $100 to $500 - these lenders charge fees that add up to an excessively high annual percentage rate.
Attorney General Cornyn alleged that these "payday" lenders were making usurious loans and violating the Deceptive Trade Practices Act, the Texas Debt Collection Act, and the Texas Credit Title. Texas law caps the interest rate that may be charged on small short-term loans at 10%, unless made by a licensed lender. None of the businesses named today are licensed lenders. The businesses named in the lawsuit tried several creative but still illegal ways to make payday loans.
For example, EZ Cash and Quick Cash typically advanced money to consumers while charging a sizable fee and requiring the borrower to write a postdated check to cover the amount of the loan. Knowing that the checks were written from bank accounts with insufficient funds to cover payment, they accepted the checks and allowed the consumer to renew the loan as long as an additional fee is paid each time the loan is due. When a borrower was delinquent in repaying their loan, the lenders deposited the check and used the "bounced check" to threaten prosecution under the state's hot check laws.
"We cannot allow payday lenders to operate outside the law when making consumer loans, and then have them use the law for the purpose of collecting illegal and outrageous interest," said Attorney General Cornyn.
Cash Today, another of the companies being sued, operates a money lending business throughout Texas that lures potential customers with ads that say "CASH TODAY, $100 - $1,000." When people go to the Cash Today offices, they learn that, as a condition of getting the cash advance they must buy "advertising." This so-called advertising costs $33.00 per 20-character line, is not published until two months later, and appears only in a small publication that is distributed primarily at the Cash Today stores. Cash Today sued the Consumer Credit Commissioner for a declaration that this "advertising" is not actually a loan, and the Attorney General has counterclaimed alleging violations of usury laws.
For every $100.00 cash advance, a customer is required to write Cash Today a check for $100.00 and to pay for $33.00 of this "advertising." Cash Today then agrees to hold the customer's check for fourteen days, at which time the customer may pay another $33.00 to postpone deposit of the check for another fourteen days. This "deferred presentment" process can continue for at least six cycles, and it results in an effective annual interest rate of 860%.
Cash Today threatens to prosecute their customers if the checks bounce and to enlist constables and local prosecutors in their private collection efforts against their customers.
These lawsuits were filed at the request of Consumer Credit Commissioner Leslie L. Pettijohn. The EZ Cash and Quick Cash lawsuits were filed in Hidalgo County District Court and are being handled by Assistant Attorneys General Ric Madrigal and Tracey Whitley of the McAllen Office of the Consumer Protection Division. The Cash Today lawsuits were filed in Travis County District Court and are being handled by Assistant Attorney General Ann Hartley of the Austin Office of the Financial Litigation Division.
Consumers who feel they have been charged too much for a loan may file a consumer complaint with the Attorney General's office by calling 1-800-621-0508 and requesting a complaint form or downloading the form from the web site at www.oag.state.tx.us.
- 30 -