Attorney General Cuomo Announces Distribution Of $5.2 Million Settlement In "rent-a-bank" Payday Lending Scheme
NEW YORK, NY (November 17, 2009) - Attorney General Andrew M. Cuomo today announced a $5.2 million settlement will be distributed to New Yorkers previously victimized by two companies operating ‘payday loan’ schemes.
The two companies, County Bank of Rehoboth Beach, Delaware (“County Bank”), and TC Services Corporation d/b/a Telecash, an out-of-state financial company that operated an illegal “payday loan” scheme, agreed to pay the refunds to New York consumers and an additional $300,000 in penalties and costs. In addition, the companies were prohibited from collecting on any outstanding payday loans made to New York consumers.
The Attorney General’s Office, in conjunction with the Better Business Bureau which is serving as the settlement administrator, will begin distributing the $5.2 million restitution fund to more than 14,000 New Yorkers who were victims. Identified fund members will be sent a form to fill out to claim their share of the proceeds. After the claim forms are received, claimants will be sent a check. The more than 14,000 victims reside all over the state of New York with particularly large representation in Brooklyn and the Bronx. Individuals will receive restitution ranging from $10 to more than $4,500. The amount of restitution will be based on a formula according to the amount of interest paid.
“This ‘payday loan’ scheme lured financially vulnerable borrowers into high-cost short term payday loans with exorbitant interest rates, trapping many of these individuals and families in a cycle of mounting debt,” Cuomo said. “These unscrupulous lenders must return to New York consumers the excessive interest rates they charged, and hopefully help these consumers break the cycle of debt created by this payday loan scheme.”
“Payday loans” are small-dollar ($100-$500) loans, which the borrower promises to repay out of his or her next paycheck, and generally carry annual interest rates that exceed 500 percent. Most consumers cannot afford to pay off the loans when they become due and are required to extend or ‘roll-over’ the repayment period by paying additional interest. Payday loans are generally illegal under New York State laws that prohibit making loans at interest rates above 16%.
According to the complaint filed by the Attorney General, non-bank Pennsylvania based payday lenders Telecash, and CRA Services Inc., d/b/a “Cashnet,” made thousands of illegal payday loans to New York consumers under an elaborate and fraudulent “rent-a-bank scheme” with County Bank, a Delaware state bank. While “Cashnet” was part of the scheme the company is now defunct and therefore did not contribute to the settlement.
Essentially, Telecash and Cashnet, through an agreement with County Bank, disguised their payday loans as being made by County Bank. Federal banking laws permit state or nationally chartered banks to make loans throughout the United States at the interest rates permitted under the bank’s home state. Unlike New York, Delaware does not limit the amount of interest that can be charged on a loan, and thus permits high interest rate payday loans.
Individuals who believe that they might be eligible for restitution or who have questions about this restitution program should call the Attorney General’s Help Line at 1-800-771-7755.
This case was handled by Assistant Attorney General Benjamin Lee under the direction of Joy Feigenbaum, Chief of the Consumer Frauds and Protection Bureau.