Banking commissioner rules All American Check Cashing did thousands of illegal loan rollovers
By TED CARTER
A Hinds County chancery judge on May 12 gave Mississippi payday lender All American Check Cashing a brief reprieve from a state Department of Banking and Consumer Finance shutdown order for its 75 stores, a $1.58 million fine and a demand to pay refunds to at least 700 customers.
The 18-year-old Madison-based All American Check Cashing posted a $2,000 bond as a condition of granting its request for the stay of an order from Mississippi Banking Commissioner Charlotte Corley.
Payday lenders make short-term low-dollar loans to borrowers who have a job or a source of regular income. The borrower leaves the lender a post-dated check for which the lender can seek payment if the loan is not repaid within a specified time.
The penalties put on All American stem from a finding by state regulators that it engaged in a companywide practice of illegal rollovers of payday loans. Instead of encouraging borrowers to pay off the loans as due, say regulators, the payday lender and check casher persuaded borrowers to pay only the fees of $21.95 on each $100 of the loans and to take out a new loan to pay off the old one.
The practice, regulators say, gained new fees for the All American and trapped borrowers in a cycle of ever-increasing debt.
The order blocking the state regulatory penalties expires May 22, the Chancery Court says. Presumably, an overturn of the order would require Gray to convince Chancery Judge Dewayne Thomas the regulatory penalty is excessive. All American says the largest penalty ever previously imposed by the Banking Department was about $50,000 and has denounced the investigation and penalties as government “thuggery.” Bank regulators say, however, that until now have not sought penalties against a payday lender.
The payday lender says regulators are biased, examiners in a June 2014 raid entered areas without authority and forced employees to answer questions using threats of jail time, and concocted bogus customer complaints. All American renewed those claims May 12 before Thomas, saying Corley’s order “is not supported by clear and convincing evidence, is arbitrary and capricious, is beyond the power of the department, and is the result of multiple violations of All American’s statutory and constitutional rights.”
In a news release, the company accused the Banking Department of trying to put more than 180 employees out a job and leave thousands of customers unserved.
“I look forward to finally having this case examined by a fair and impartial judge,” Gray said in the statement.
But earlier appeals to outside authority have gone nowhere, including a 2015 hearing in Hinds Chancery Court.
A federal lawsuit by All American against the Banking Department was dismissed, as was a state ethics complaint saying the department didn’t respond to the company’s public records request. The company last year also sent reporters a document addressed to the state’s Joint Legislative Committee on Performance Evaluation and Expenditure Review, suggesting a lawmaker has asked the watchdog body to scrutinize the Banking Department’s actions.
Corley, in a statement after the May 11 order, said:
“I had no option but to permanently revoke all licenses held by All American or its owner, Mr. Michael Gray.”
Fault, Corley said, “lies with Michael Gray and those individuals that he placed in positions of authority within his company.”
The department cited numerous other violations of state law and regulations, and said the company tried to shut down stores in 2014 so state examiners couldn’t observe transactions, delayed providing documents, interrupted attempts by state examiners to interview customers and even followed examiners’ vehicles after they left stores.
Meanwhile, the U.S. Consumer Financial Protection Bureau is suing All American in federal court in Jackson, seeking to force refund payments to hundreds of customers. A federal magistrate judge in early May denied All American’s attempts to freeze that case on claims that the bureau is unconstitutional and ordered the company to submit documents the agency demanded.
Trial on the CFPB suit is scheduled for January.
Corley’s May 11 order followed an 18-month investigation by the Banking Department, federal court challenges and 24 days of administrative hearings that stretched from November to this past April.
The original order issued in early January 2015 assessed a $3 million penalty but allowed an appeal hearing before the state banking commissioner.
An All American training document on loan rollovers found on the company’s intranet is a key piece of evidence used by regulators.
Corley rejected a claim by Gray that he had no knowledge of the document. Her order cites emails in which Gray advised his supervisors to use the document to “teach, coach and assist your mangers in learning our ways.”
Titled “Loaning on the 1st and 3rd,” the document provided instructions for loaning money to customers who are paid once a month. Investigators say the program directed employees to accept only the fee on a delayed deposit check.
(The Associated Press contributed to this report.)