A U.S. Consumer Financial Protection Bureau investigation of payday lender All American Check Cashing has led to a lawsuit that alleges the company’s stores in Mississippi, Louisiana and Alabama carried out a company-wide policy of deceiving customers who cashed checks or took out payday loans with them.
The suit filed May 11 in the U.S. District Court Southern District of Mississippi seeks to stop All American Check Cashing’s practices. It asks for restitution and refunds to customers of the 43 stores in Mississippi and a handful of others in Alabama and Louisiana.
In addition to civil penalties, the Consumer Financial Protection Bureau asks for monetary awards, damages, penalties, and surrender of illegally obtained profits from the Madison-based company.
The suit claims All American made more than $1 million in fees annually for cashing 12,000 to 17,000 checks a year. Figures All American provided to the Mississippi Business Journal three years ago put the company’s annual revenue at $20 million.
The Consumer Financial Protection Bureau, or CFPB, charges All American tricked and trapped check-cashing and loan customers as part of a deception strategy devised by the 17-year-old company and owner Michael Gray.
“AACC (All American Check Cashing) and Mr. Gray promoted” the deceptive practices involving check cashing and shorter-term, low dollar loans, the suit alleges, and adds:
“Mr. Gray created, or specifically approved, many of these policies and procedures.”
As they have done in response to a $3 million penalty from the Mississippi Department of Banking and Consumer Finance, lawyers for All American say the CFPB is bullying a small business that provides 150 jobs across Mississippi.
The suit is a “frivolous, bullish attempt to overshadow an industry by attacking a small, independent business owner,” All American’s attorney Dale Danks Jr. said in a press release issued by All American’s publicist.
The 23-page complaint from the CFPB says the deception strategies used in check cashing had a single goal: Keep the customer from knowing the amount of the fees.
And if the customer protests once the fee is discovered, the store employee was to tell the customer the transaction can’t be cancelled, the suit says.
The Bureau alleges company policy was to “never tell the customer the fee” even though Mississippi law requires posting of a sign noting the fees for various types of checks.
All American’s stores displayed the required sign under the counter. “Per company policy, AACC employees must direct customers to a seat in the lobby while the check is being verified and processed, and ensure that the consumer’s time at the counter is as minimal as possible,” said CFPB Enforcement Division attorney Emily Mintz in last week’s filing.
Deception practices went so far as to include counting the money from the cashed check “over the receipt” to conceal the “consumer’s view of the fee,” Mintz wrote.
The suit says one former store supervisor recalled: “Employees at the store I supervised asked customers to sign the receipt after the money was counted out over the receipt, so customers would not have a clear view of the fees listed on the receipt before signing it.”
Store employees told customers who protested the fee that the transaction can’t be reversed, the suit charges. The suit says in some instances this was true because employees would apply a stamp to the back of the check – such as “FOR DEPOSIT ONLY: ALL AMERICAN CHECK CASHING INC.”
In addressing payday loans, the suit alleges All American used deception to support its practice of limiting loan repayment to two weeks, thus collecting the same, if not more, in fees as it would with a 30-day loan.
The key was to issue a series of loans below a state-mandated $250 threshold that gives a borrower 30 days to repay.
By taking out two-week loans from All American, “consumers pay more in fees for the same or less net cash received during the month,” the CFPB suit says.
In a claim that is at the heart of state-ordered sanctions against All American, the CFPB charges that the payday lender “regularly rolled over consumers’ loans, even when it is illegal do so under state law.”
A rollover occurs when the store makes a new loan to cover the principal and fees charged in the initial loan. A variation occurs when the customer pays the fees but receives a new loan to cover the principal of the previous loan. New fees come with the new loan.
The CFPB also alleged that All American made deceptive statements about the benefits of its high-cost payday loans and also failed to provide refunds after consumers made overpayments on their loans.
The CFPB suit is separate from enforcement action the Mississippi Department of Banking and Consumer Finance has taken against All American and Gray. The Banking Department alleges All American violated the state’s loan rollover laws as a matter of company policy.
In ordering revocation of the licenses for All American’s Mississippi stores and payment of a $3 million penalty, the Banking Department says it found 1,600 rollover violations involving 6,500 customers. In addition, the investigation turned up 692 violations involving refusals to give customers refunds All American Check Cashing owed them, regulators say.
All American, they say, took “overt” actions to keep customers from learning they had refunds coming.
Meanwhile, Gray appealed to the Fifth Circuit Court of Appeals after failing in federal district court to halt the Banking Department enforcement actions. The legal appeal has helped him so far avoid payment of the $3 million state fine and a shutdown of his stores.
Gray’s lawyers say the businessman and his company are victims of “government thuggery” and that the “draconian” penalties proposed by regulators “are the result of a vendetta against All American, orchestrated by one or more” unidentified employees of the [Banking] Department.
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