Monday, May. 05, 2008
States, churches take aim at payday lenders
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close'An exception to the rule'
Most of the loans were through three of the nation's biggest payday lenders: QC Holdings, based in Overland Park, Kan., and owner of Express Check Advance of South Carolina; Check Into Cash, based in Cleveland, Tenn.; and TitleMax, based in Savannah and owner of CheckMax.
TitleMax and Check Into Cash are privately owned. Efforts to reach them were unsuccessful.
Tom Linafelt, a spokesman for QC Holdings, said his company doesn't lend more than a person's gross income and tries to work with customers who have trouble repaying their loans.
"The vast majority of our customers repay their loans without trouble," Linafelt said. "She's an exception to the rule."
The Rev. Kirkland put Gales in touch with Nate Fata, a Surfside Beach lawyer who handles consumer cases.
On July 23, 2007, Fata filed a suit on behalf of Gales against Express Check Advance of South Carolina, CheckMax and Check Into Cash.
"The plaintiff has no ability to pay these loans," the suit said. "She is on a fixed income and is disabled. She subsists on very frugal spending and has absolutely no extra money.
"The defendants knew or should have known the plaintiff could not repay the loan when due by virtue of not having enough income during the loan term," it said.
CheckMax replied to the lawsuit in August, asking the judge to order the issue into arbitration, saying Gales had signed a document waiving her rights to contest the contract in court.
In early October, Check Into Cash and Express Check Advance settled with Gales. CheckMax followed a month later.
By the time she sought help, Gales had five unpaid payday loans. Fata wouldn't say how many were paid or forgiven in the settlement.
For the 13 prior loans she did pay, Gales carried an average balance of $1,052 over 88 days, paying back $1,502 in principal plus $573 in interest. That's the equivalent of a 226 percent annual percentage rate.
'Un-Christian practices'
As Gales' problem loans were resolved, Kirkland began working on a resolution for the S.C. Baptist Convention calling for laws to curb "predatory" lending, "characterized by unscrupulous, unethical and un-Christian lending practices that include excessively high fees, interest rates and balloon payments."
"Customers of predatory lenders are being trapped in an endless cycle of high interest loans," the resolution said.
The S.C. Baptists passed the resolution at their annual meeting last November in Florence.
The resolution on predatory lending prompted Advance America to request a meeting with convention leaders.
Early this year, Kirkland and Joe Mack, director of public policy issues for the S.C. Baptists, met with Advance America spokesman Jamie Fulmer and other company officials in Columbia as the S.C. Senate prepared to take up a bill to bar or limit the industry.
"They talked about how great they are and what a necessary service they offer," Kirkland said. "We agreed to disagree."
Fulmer said he arranges meetings across the state to address public misperceptions about payday lending and thwart efforts to enact restrictions that, he says, would kill the industry.
"If you eliminate this product," Fulmer said, "you haven't eliminated the consumer need for the product. They'll go to more expensive options.
"Consumers are far more endangered by the high credit card balances they run up than their $300 payday loan."
'Any and all ... means'
Some of those arguments were supported by members of the S.C. Senate during hours of debate Feb. 19 on a bill to restrict payday lenders.
But, in the end, the S.C. Senate passed a bill that would limit the size and number of loans payday lenders could issue to individual borrowers. The bill also includes a database to help state regulators enforce the law.
From the Senate, the bill went to the S.C. House Banking and Consumer Affairs Subcommittee of the Labor, Commerce and Industry Committee.
The subcommittee voted April 9 to strip a lending cap from the bill.
The Senate version would have required lenders to limit the size of each loan to no more 25 percent of a borrower's gross income for the two weeks of the loan. Those earning more than $2,000 over two weeks would be limited to a $500 loan, the maximum allowed for any borrower.
The subcommittee raised the cap to $600 and stripped the income test, saying the state should defer to the judgment of borrowers and lenders.
Back in Mullins, one of Gales' former lenders has resumed contact with her.
In March, CheckMax sent her a letter saying she could repay half of her "remaining balance" settled by her lawsuit or face collection efforts.
"If you do not respond to this letter by April 1, 2008, we will have little choice but to continue to collect on your account using any and all available civil means, including the possible institution of a civil lawsuit against you."
Gales had stacked the letters on a table by her living room chair. Her pastor learned of them last month during a visit.
Fata, Gales' lawyer, has contacted CheckMax.
"They're so used to going after people," Fata said. "Even after you get out of the trap, they're still trying to set up another."
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