A.G. Schneiderman Announces Settlements With Five Companies That Collected On Illegal Payday Loans

A.G. Schneiderman Announces Settlements With Five Companies That Collected On Illegal Payday Loans

NEW YORK - Attorney General Eric T. Schneiderman today announced that his office has settled with five companies that were collecting on payday loans from New Yorkers. Payday loans violate New York’s usury and licensed lender laws. Typically, payday loans have annual rates of interest from 100 percent to 650 percent or more. These interest rates far exceed the maximum rate allowed under New York law, which is limited to 16 percent for most lenders not licensed by the state. In August, Attorney General Schneiderman filed a lawsuit against Western Sky, LLC., CashCall, Inc., and WS Funding LLC. for taking advantage of consumers by charging extremely high rates of interest that were well above New York State’s usury caps.

“Payday loans trap thousands of New Yorkers in a cycle of debt and prey on vulnerable consumers, all for the financial benefit of debt collectors. Unfortunately for those companies, payday loans are also illegal, and my office will continue to crack down on an industry that exploits desperate consumers across our state," said Attorney General Schneiderman. "These agreements are one more step in our continuing fight to protect New Yorkers from a range of unfair financial schemes – from predatory loans, to illegal foreclosures and other abuses by big financial institutions."

Payday loans are a type of short-term borrowing where an individual borrows a small amount from a payday lender at a very high rate of interest. Many consumers cannot afford to pay off the loan when it becomes due and must extend, or roll over the payment period by paying additional interest. Even when a consumer can pay, many payday lenders renew the payday loan automatically, deducting only interest from the consumer's bank account without paying down the principal. Consumers take out new payday loans to pay off the old and often end up being trapped in a cycle of debt.

Payday loans also have harmful consequences for our national economy. According to a March 2013 study from the Insight Center for Community Economic Development, the payday lending industry negatively impacted the U.S. economy in the amount of $774 million in 2011, resulting in the estimated loss of more than 14,000 jobs. U.S. households lost an additional $169 million as a result of increased Chapter 13 bankruptcies linked to payday lending usage, bring the total loss to nearly $1 billion.Below is list of the companies involved in the settlement:

V&R Recovery, Inc. DBA Alexander & Stefano, 3411 Delaware Ave, Kenmore, NY 14217

RJA Capital, Inc., 461 Ellicott Street, Buffalo, NY 14203,

Westwood Asset Management, LLC,2316 Delaware Ave, Buffalo, NY 14216

Erie Mitigation Group, LLC,3711 California Road, Orchard Park, NY 14127

Northern Resolution Group, LLC,501 John James Audubon Pkwy, Amherst, NY 14228

Payday loans traditionally work the following way:

  • The payday lender offers a short-term loan (e.g. the next payday) and charges a fee per hundred dollars (typically $25 to $35 per hundred borrowed). 

  • For example, for a $500 two-week loan at $25 per hundred, the consumer will pay a $125 fee. This equals a 652 percent interest rate.

  • The consumer must give the payday lender electronic access to his or her account. The lender will electronically deposit the payday loan into the account and will electronically withdraw payments.

  • Frequently, however, on the due date, the lender will withdraw only the $125 fee, and rolls over the $500 principal to the next payday (“renews” the loan). On the next payday, the lender again takes $125 and rolls over the $500 principal. This can go on for several paydays.

  • Indeed, some payday lenders permit interest-only payments for several pay periods. To initiate full payment, others may require that the consumer must notify the lender days before the due date.

  • In the example above, if the loan is rolled over 3 times, the consumer will pay $500 in interest for an 8-week $500 loan.

The five companies involved in the settlement will pay a total of $279,605.98 in restitution and $29,605.98 in penalties. In addition, one debt-buying company was required to reverse 8,550 negative credit reports it had made to credit reporting bureaus on New Yorkers, and is prohibited from collecting on $3,200,000 in payday loans taken out by New Yorkers. All of the companies will be prohibited from collecting on payday loans from New Yorkers in the future.

Assistant Attorney General James M. Morrissey handled these settlements.