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All American Check Cashing location in Ridgeland.

Settlement shuts down payday lender, cuts fine nearly in half

By TED CARTER

All American Check Cashing owner Michael Gray has settled with state banking regulators after years of failed legal appeals over charges his dozens of payday lending stores used illegal loan rollovers to trap borrowers in a cycle of debt.

In exchange for Gray dropping further appeals of a license revocation order and civil penalties from the Mississippi Department of Banking and Consumer Finance, the state cut a $1.6 million fine by nearly half. With the settlement, Gray gives up his licenses to operate his 75 payday lending stores across the state, refunds $135,000 to 703 victimized borrowers and pays $889,350 in civil fines.

Regulators calculated the civil penalty based on $275 for each of the 3,234 loan rollover violations investigators uncovered in a probe that began in June 2014, according to the settlement order filed with Hinds Chancery Court.

The Banking Department’s original order issued in January 2015 specified a $3 million fine.

Payday lenders make loans to borrowers who have 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.

Regulators say their lengthy investigation found that Madison-based All American initiated a companywide scheme in which borrowers were encouraged to pay only the fees on their payday loans and get a new loan to replace the former one. This practice, regulators say, led to higher and higher debt for the borrowers and violated Mississippi’s ban on rollovers of the low-dollar short term loans.

Regulators say – and Gray does not deny – that his stores offered borrowers the option of paying 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 stores rolled over the loans every two weeks.

The settlement came a day after Chancery Judge Dewayne Thomas lifted a stay he granted May 12 of a Banking Department order for Gray to surrender his check cashing licenses, cover the $135,000 in refunds and pay the $1.6 million civil fine.

Thomas concluded “there is little likelihood that the plaintiffs will prevail on this matter on appeal” and ruled he thusly lacked authority to postpone the license revocations and refunds.

However, Thomas left in place a stay on the $1.6 million fine. He set a $500,000 bond as a condition for Gray making further appeals of the fine.

Thomas said the absence of a challenge by Gray to the rollover violations during a recent administrative hearing all but killed his chances of successfully appealing the state’s order to shut down his stores. “Such violations constitute a basis for revocation of the license,” Thomas wrote in his two-page ruling

Until the June 5 order from Thomas, Gray managed through legal maneuvers to dodge Banking Department efforts to close his stores, force payment of refunds to hundreds of customers and the initial fine of $3 million.

Gray attorney Michael Cory vowed to appeal the ruling to the Mississippi Supreme Court. By the next day, Gray, Cory and Banking Department officials negotiated the settlement, however.

Gray failed two years ago to convince the Chancery Court to toss out the Banking Department’s license revocations. He next turned to the federal courts, where the issue remained tied up until fall of this year. Both the U.S. District Court for the Southern District of Mississippi in Jackson and the U.S. Court of Appeals for The Fifth Circuit in New Orleans rejected his appeals.

All American’s lawyers characterized actions of the banking regulators as “government thuggery” motivated by personal grudges against Gray. They argued that the state’s action will put nearly 200 people out of work and leave thousands of Mississippians without access to small, short-term loans.

A former executive of All American said he has received reports that Gray has sold some or all his 75 stores, including one in Canton housed in a building Gray owns.

Though Gray will not have state check cashing licenses to transfer to new owners, he can sell his payday customer loans to another company that could collect on them, the former executive said. As an example, he said Gray could sell $100 All American customer loans to another payday loan company for $40 apiece.

Mississippi Banking Commissioner Charlotte Corley and her staff have refused to answer questions from the Mississippi Business Journal about All American for nearly a year. The department has given no reason for this.

However, Corley, in a statement after her 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.”

Gray’s troubles do not stop with state regulators. 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. The CFPB says the refunds represent money customers were due but withheld by All American.

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.

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