By TED CARTER
State banking regulators say they are ready to shut down Madison payday lender All American Check Cashing’s 43 stores and fine owner Michael Gray $3 million for illegal loan rollovers and other offenses.
The penalties stem from what the Mississippi Department of Banking and Consumer Finance says are “numerous violations” of both the state’s Check Cashers Act and the Mississippi Title Pledge Act. “The most egregious violations include company-wide adoptions of policies to encourage or condone repeatedly paying off one loan with another,” Taft Webb, director of the Consumer Finance Division, said in describing the rollovers.
Webb, in a Jan. 29 letter to Gray, said instances of the rollovers “are so widespread that they are innumerable.”
Payday loan rollovers by which a new loan is given to pay off a standing loan are illegal in Mississippi. The new loans come with new fees that are added to fees assessed in the original loan.
Webb said he has documented evidence of 1,600 violations that involved 6,500 customers.
Further, Webb said the Department’s 19-month investigation found 692 violations involving intentional refusal to pay refunds to customers and “overt actions” to prevent discovery of such actions.
Other violations cited include:
>>>Allowing 183 customers to receive payday loans without having an open and active checking account (payday loans are suppose to be repaid with a check dated for expiration of the loan period);
>>>Intentionally instructing employees to violate the Title Pledge Act by “flip-increasing” title-pledge loans and intentional refusal to provide the banking department access to licensees’ business records. Webb put the number of such violations at 7,400.
Gray’s troubles don’t end there.
The federal Consumer Financial Protection Bureau has taken a close look at All American’s lending and collections practices and apparently found violations similar to those discovered by the state. The watchdog agency is especially concerned with tactics payday lenders use to extract payments from borrowers.
All American says it made a “substantial” settlement offer to the Bureau in hopes of avoiding more stringent sanctions.
Created through the Dodd-Frank Wall Street Financial Reform and Consumer Protection Act, the Bureau has shown a willingness to put severe penalties on payday lenders who run astray of state and federal laws. In July 2014, it fined Texas-based ACE Cash Express, a large payday lender with a franchise store in Hattiesburg, $10 million, of which $5 million was to be restitution to victimized customers.
That penalty followed by slightly more than a year the Bureau’s more than $14 million in penalties against large-scale payday lender Cash America.
Officials in the Mississippi Department of Banking and Consumer Finance declined to talk specifically about the All American case. They indicated, however, that restitution to affected consumers would be a condition that must be met in order for violations to be resolved.
Gray, through his Jackson attorney Dale Danks Jr., says the state action would force his statewide payday lending operation to shut down – an outcome state regulators apparently seek to achieve.
Having concluded its investigation into the alleged illegal loan rollovers by All American, the banking department has given the company until Feb. 1 to reach an agreement “at least in principle,” the payday lender says.
In its Jan. 29 letter to Gray, the banking department said Gray can pay the $3 million within 10 business days and accept the permanent license revocations or request a hearing before Banking Commissioner Charlotte Corley.
All American responded by asking a federal court for an injunction against Mississippi banking regulators.
The payday lender says state agents sent a letter in January that made clear they want to impose “draconian measures” on the company that would cause it to “cease as an on-going entity.”
“The action proposed by the Department in its January letter would necessarily cause All American irreparable harm,” Danks said in a complaint filed Jan. 29 with the U.S. District Court for the Southern District of Mississippi.
Further, the payday lender said sanctions contemplated by the state would “wipe out” the company and leave it without “cash or other assets” to pay any potential penalties levied by the banking department.
The admission that All American sought to settle CFPB claims is included in the federal complaint.
State agents began a probe in June 2014 of alleged illegal rollover loans by All American and last May handed the statewide payday lender a report on its findings.
Mississippi bank regulators charge that All American routinely illegally rolled over loans that left borrowers on the hook for hundreds, if not thousands, of dollars on small dollar loans. State banking regulators have let All American operate under a temporary license since it put the company and its 43 stores around the state under a June 2014 cease-and-desist order forbidding any more loan rollovers.
The order followed a June 16, 2014 raid on a half dozen All American stores and the uncovering of what regulators say were instructions on the company intranet detailing how to do the illegal loan rollovers. Gray, in an interview in late 2014 with the Mississippi Business Journal, disavowed any knowledge of the training document. A former executive with the company says All American used the document in manager training sessions, however.
In its federal filing, All American called the raids illegal and says banking department agents intimidated employees as well as interfered with customers seeking loans. “The agents followed customers out of the All American stores and pressed those customers for desired information,” attorney Danks said in the complaint.
Agents “went so far as threatening employees with jail time if they did not comply with the agents’ instructions to change answers,” Danks added.
Danks did not return a phone call seeking further comment.
The move against All America marks the first significant penalties proposed against a payday lending industry that Mississippi lawmakers made a permanent part of the state’s authorized financial services in 2013. The 2013 legislation made permanent the five-year renewal legislators gave payday lending in 2012.
In that legislation, lawmakers granted payday lenders authority to increase loans and fees to $500 from a previous cap of $400.
In that same year, Mississippi’s slightly more than 1,036 payday lending stores did $1.4 billion in business, generating $261 million in income for payday lenders, according to the Center for Responsible Lending.
Attorney Whitney Barkley, the Center’s policy counsel, said prohibitions on payday loan rollovers such as the one Mississippi has do not stem financial damage to individual and households in Mississippi. The problem, she said, is high interest and the frequency of loans to individuals.
“Seventy-five percent of the fees come from borrowers who have 10 or more loans in a year,” Barkley said.
Interest-rate caps of 36 percent are more effective in easing the debt burden of individuals and families, she said, and put the annual percentage rate collected by Mississippi’s payday lenders at 520 percent on an average loan of $350.
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