North Country Firm Sued Over Payday Loan Scheme

Attorney General Spitzer today announced a lawsuit against a payday lending firm that targets military families and other consumers in the North Country.

According to legal papers, JAG NY and its owner John Gill, operate three N.Y. Catalog Sales stores in Jefferson and Warren Counties from which they offer "payday loans" -- short-term unsecured loans that borrowers promise to repay out of their next paycheck. Aware that these loans are illegal in New York State due to their excessive interest rates, N.Y. Catalog Sales tries to disguise the interest charges as payment toward "catalog sale" purchases.

N.Y. Catalog Sales attracts consumers into their stores by promoting in advertisements, flyers and store front signs, the availability of fast cash of up to $500. Once in the store, consumers are told that, for every $50 they wish to borrow, they must spend $15 on merchandise offered in the store's catalogs or on a gift certificate. Consumers then present the store with a post dated check in the amount of the cash they wish to borrow and the cost of the merchandise or gift certificate they must purchase. The store agrees to deposit the check on the consumer's next payday.

The vast majority of consumers complete their transactions for the sole purpose of obtaining the cash loan. The merchandise offered in the store's catalogs is grossly overpriced and of little value to consumers, and most consumers never purchase any merchandise or redeem their gift certificates.

As in most payday loan scenarios, N. Y. Catalog Sales' customers are usually unable to repay their loan on their next payday, and fall into a cycle of repeating their transactions so that they can use the newly borrowed cash to cover their previous check. With every "roll-over" of their loan, however, the consumer is required to purchase additional merchandise or gift certificates, quickly resulting in the total cost of the purchases exceeding the amount of the individual's loans.

"This is a transparent attempt to evade New York laws that prohibit loan sharking" said Spitzer. "Consumers use these services out of desperation, and are invariably exploited to their financial detriment."

Spitzer said he found it particularly troubling that two of the stores are located directly outside of Fort Drum. "The location is no accident. Payday lenders routinely prey upon military personnel and their families, who are often strapped for cash. Especially in a time of war, our military personnel should not have to face these unconscionable and illegal loans," Spitzer said.

Spitzer's office also alleges that when consumers are unable to cover their checks to N.Y. Catalog Sales, the store engages in illegal and abusive high pressure collection tactics such as harassing consumers with excessive phone calls or house visits, making false and improper threats, calling consumers at work, and disclosing confidential information to third parties without the consumer's consent.

Hundreds of New York consumers have fallen prey to this scheme and have paid N.Y. Catalog Sales thousands of dollars in excessive and illegal interest payments.

In filing the lawsuit, Spitzer seeks a court order that would:

• Permanently bar N.Y. Catalog Sales and its operator from marketing and providing loans in violation of state law;
• Declare null and void any loan arranged by N.Y. Catalog Sales with an interest rate that exceeds legal limits; and
• Direct N.Y. Catalog Sales to pay consumers restitution in the amount of the excess illegal interest, plus damages.

Consumers wishing to file complaints against N.Y. Catalog Sales are encouraged to contact the Attorney General's consumer help line at (800) 771-7755.

This case is being handled by Assistant Attorneys General Mark Fleischer and Joseph Wierschem of the Consumer Frauds and Protection Bureau.