Madison payday lender All American Check Cashing is under a “cease and desist” order after refusing to let examiners from the Mississippi Department of Banking and Finance review its records for signs of illegal lending.
The order followed a state raid on 15 of the company’s 41 Mississippi stores, a former executive of All American Check Cashing said.
Examiners say they suspect All American had a companywide policy of illegally rolling over short-term payday loans. This was done through a formalized policy of having the borrower pay only the fees assessed on the original loan, an arrangement that garners the lender a new set of fees when the loan extension expires, the Department of Banking and Finance says.
Payday lenders require borrowers to be employed, have a bank account and show proof of receiving regular paychecks. They must leave a “delayed” personal bank check as security.
Mississippi law forbids rollover of loans which essentially means “you can’t pay one loan with the proceeds of another loan,” said Taft Webb, director of the department’s consumer finance division.
Webb said his office initiated the cease and desist order after “a couple of days” of All American Check Cashing failing to allow examiners access to records of transactions made at its 41 Mississippi stores. Examiners were following up multiple complaints received from borrowers about All American’s loan rollover practices, Webb said.
In the order, Webb and Banking Commissioner Jerry Wilson say the department “has reasonable cause to believe that All American check Cashing has violated certain provisions of the Mississippi Check Cashers Act and the Mississippi Title Pledge Act.”
As the investigation proceeds, All American can proceed with its payday loans and its other financial retail activities, but can’t take further action on the loans taken out by borrowers who brought the complaints against the company, Webb said.
However, All American also must stop all lending under what the company calls its “Monthly Lending Program, he said. Under this policy, employees are illegally directed to accept only the fee on a delayed deposit check and “further instructs them on how to illegally roll a check during the middle of each month, the cease and desist order states.
The order notes All American designed the program especially for borrowers who get monthly paychecks or government benefit checks.
Webb and Wilson said examiners discovered the “Monthly Lending Program” on All American’s intranet last month. “Multiple examined locations have also confirmed participation/use of the program,” they said.
In a further demand, Webb and Wilson addressed the use of the “delayed” deposit checks borrowers must give All American as a requirement of the loan. The company, they said, must cease and desist from “rolling” checks, renewing checks and “in any form or fashion using the proceeds of one delayed deposit check to pay the principal or fee owed on any other delayed deposit check.”
In an indication they suspect All American is lending to borrowers who do not have actual bank accounts, Webb and Wilson’s order forbids the company from doing delayed deposit transactions for customers who do not maintain legitimate bank accounts. The order further prohibits transactions based on a pre-paid debit card instead of a bank account.
Webb, in an interview Tuesday, said he is unsure when the department will complete its investigation. While each violation can bring a fine of up to $500, findings of serious wrongdoing could lead to revocation of All American Check Cashing’s license to operate in the state, according to Webb.
“We are in the very early stages of the investigation,” he said.
‘No Meaningful Regulation’
In Mississippi, payday loans are either tier one or tier two. Tier one loans are limited to a combined total of $400 and have a two-week repayment period. A tier two loan is a single loan of from $250 to $500 and must be repaid within 28 days. The state allows a fee of $22 to be assessed on each $100 of a tier one loan and $44 on a single tier two loan.
The Center for Responsible Lending, a non-partisan watchdog
organization based in North Carolina, designates Mississippi as among states lacking laws that provide meaningful regulation. The organization, created to combat predatory lending, estimates Mississippians pay $261 million a year in fees to the state’s slightly more than 1,000 payday lenders.
“Over two-thirds of that is due to churning borrowers every two weeks,” said Diane Standaert, Center for Responsible Lending’s legislative counsel.
In Mississippi and elsewhere in the United States, 75 percent of the fees handed over to payday lenders come from borrowers who take out more than 10 loans a year, Standaert said.
Mississippi’s “no meaningful regulation” designation is merited by the payday-lender friendly provisions legislators inserted into a 2012 renewal of the state’s payday lending law, said Paheadra Robinson, an attorney and the Mississippi Center for Justice’s director of consumer protection.
As revised, Mississippi’s law helps to ensure borrowers stay trapped in a debt cycle, she noted in an interview Tuesday.
The law increased the allowable loan amount from $400 to $500 but lengthened the repayment period from 14 to 28 days and limited the fees attached to 28-day loans.
But it left lenders a way around the 28-day repayment period and fee limit that accompanied it, Robinson said. Say a borrower needed $400.
Instead of making a tier two loan of $400 with a fee cap of $44, the lender uses its leverage as the loan authorizer to persuade the borrower to take out four $100 loans, each of which carry a fee of $22, she explained.
The borrower gets his $400 but he also is owes $88 in fees and has 14 fewer days to pay up.
It’s all legal, Robinson said.
But what is not legal though widely practiced in Mississippi is an arrangement by which the borrower, on a continuing series of 14-day due dates, keeps paying the $88 in fees, she added, with the $400 principal remaining intact.
“That is what that company (All American Check Cashing) was doing,” she said.
“We can’t wait to see the final outcome.”