The U.S. Court of Appeals for the Fifth Circuit is the next stop in embattled All American Check Cashing’s fight to keep its 43 Mississippi payday lending stores open and avoid paying a $3 million fine.
The Madison-based check casher and payday lender is the first low-dollar, short-term lender charged with running afoul of the state’s law against collecting fees on loans while issuing a new loan to pay off the old one, a process commonly referred to as a rollover. The Mississippi Department of Banking and Consumer Finance said a lengthy investigation led it to conclude the payday lender did the rollovers as companywide policy and trained managers in the nuances of the process.
Regulators say their 19-month investigation 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.
Lawyers for All American appealed to the Fifth Circuit in New Orleans after U.S. District Court Judge Tom S. Lee in Jackson dismissed requests for a restraining order and preliminary injunction in late March. They had hoped to stave off the closings with an argument that owner Michael Gray 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.
Lee responded with a 45-page denial in which he ruled “the District Court has no discretion to dismiss” the Department of Banking and Consumer Finance’s complaint.
Lee concluded taking up the case would interfere with an ongoing state administrative proceeding in which the state has an important interest. Further, Lee found All American has an adequate opportunity in state courts to raise constitutional challenges.
Lee has yet to rule, however, on the constitutional validity of a suit from All American seeking dismissal of the claims and damages for violations of several of the company’s constitutional rights. The Banking Department has filed a motion to have the suit tossed. All American has not yet responded, according to regulators.
Lee said the case law he relied on in denying the restraining order and inunction requests would not apply to the arguments All American raised in its suit against the Banking Department.
All American filed the suit seeking dismissal and damages the day before a deadline was to expire for it pay the $3 million in fines and surrender the licenses to do business under the state’s Check Casher’s Act and Title Pledge Act. The suit claims regulators took “irrational, unreasonable, unnecessary, and illegal actions intended to deprive All American of its Constitutionally-protected rights.”
In light of Lee’s detailed dismissal of the injunction request, banking regulators say they are unsure what issues remain for All American’s Memphis law firm Dinkelspiel Rasmussen & Mink to raise in the Fifth Circuit. They’ll find out in May when Gray’s legal team files its brief with the Fifth Circuit.
The Banking Department says once the legal wrangling is over it intends to hold an administrative hearing before Banking Commissioner Charlotte Corley. Gray and his lawyers will get to respond to the allegations the Banking Department raised after its lengthy investigation.
It’s unclear whether the legal issues can be resolved and a hearing held before Sept. 30, the date All American’s state-issued license expires. If not, the Banking Department will be faced with having to decide whether to renew a license for a company it believes engaged in widespread abuse of laws designed to protect consumers.
Meanwhile, All American is facing possible disciplinary action from the U.S. Consumer Financial Protection Bureau. The agency’s investigators have questioned a number of All American’s current and former employees and interviewed customers of the company as part of its investigation.
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