By TED CARTER
A federal judge has ordered the Mississippi Department of Banking and Finance to hold an administrative hearing for payday lender All American Check Cashing over allegations the lender had a companywide strategy to collect illegal fees from borrowers.
The hearing, which could be a prelude to the forced closing of All American’s 43 Mississippi stores and a $3 million fine, gave an indication of the defense the payday lender’s lawyers intend to make: “Government thuggery” is behind an enforcement action in which regulators have failed to substantiate any of their illegal loan rollover claims.
As a result, banking regulators are set to impose “a summary death sentence” on All American Check Cashing, said attorney Peter Baskind of the Memphis firm Dinkelspiel Rasmussen & Mink.
The banking department’s May 12, 2015 Report on Examination on which the proposed penalties are based lists no specific illegal transactions by All American, Baskind said. Nor are any times, places and dates of illegal transactions listed, he added.
Instead, the examination report is chock full of the word “appears,” the lawyer said.
The banking department said in its May 2015 Examination Report on All American that it drew evidence from questioning store employees and interviewing customers as well as reviewing transaction records. Still other evidence came from video and audio records taken from security cameras at stores, the department says.
Some of the illegal actions occurred while examiners were in the stores doing their own videotaping, the department says.
“The video evidence shows fee-only transactions, which are illegal, being conducted in plain view of the examiners,” the Examination Report notes.
Senior Judge Tom S. Lee of the U.S. District Court for the Southern District of Mississippi put a speed bump in front of the banking department’s penalty assessments at a Feb. 12 hearing. He ruled that regulators can’t revoke All American’s store licenses and force payment of the $3 million without giving the payday lender a hearing before Banking Commissioner Charlotte Corley.
Lee’s order followed two hours of arguments from state lawyers and lawyers for owner Michael Gray on Gray’s bid for an injunction to halt the regulatory penalties. Lee said he would rule soon.
Gray is fighting regulatory claims his stores made thousands of illegal loan rollovers and committed other offenses as a corporate strategy. The main offense, regulators say, involved letting borrowers continually pay the loan fees of $20 per $100 on two-week loans instead of the principal loan amount, thus creating a new loan (or rollover) and trapping borrowers in a cycle of debt.
Instances of the rollovers “are so widespread that they are innumerable,” Taft Webb, director of the banking department’s Consumer Finance Division, said in his Jan. 29 penalty notice to Gray.
Representing the banking department, Justin Matheny of the Mississippi Attorney General’s civil division said Banking Commissioner Corley likely would conduct a hearing regardless of whether it is required. “There’s a lot of documents and evidence that must be considered,” Matheny said.
But putting a halt to the administrative actions, including the license revocations, is unmerited, Matheny said. He cited case law he said required that the potential harm to a license holder must be “the greatest of the greatest irreparable harm.
“Irreparable harm means no remedy in law,” he said.
The soon-to-be-held hearing and a judicial appeal to Chancery Court are available remedies, Matheny added.
While Gray’s lawyers persuaded Lee to order a hearing, the lawyers questioned whether Commissioner Corley can be unbiased in that her department is assessing the penalty and stands to get a huge check if the penalty goes forward.
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