PayDay Lenders May Disappear from Pennsylvania….awww shucks.
By Stephen Otto, Pennsylvania Bankruptcy Attorney on Oct 19, 2007 in Pennsylvania
Lawmakers in Pennsylvania are to be commended for a decent consumer friendly piece of legislation known as the Consumer Discount Company Act (CDCA), 7 Pa. Stat. Ann. §§ 6201-6219. Pennsylvania’s CDCA limits lenders who charge interest greater than 6% on small loans not exceeding $25,000 to businesses that are organized under the Business Corporation Law of the Commonwealth of Pennsylvania and who are licensed by the Secretary of Banking of the Commonwealth of Pennsylvania.
The bad news is that, up until very recently, the CDCA was powerless to stop much of the payday lending that was occurring in Pennsylvania. This was not due to poor statutory construction. Rather, it was due to the fact that financial institutions located outside of the Commonwealth and licensed as “National Banks” by the Office of the Comptroller of the Currency (OCC) were not subject to the jurisdiction and regulation of the Pennsylvania Department of Banking.
Payday lenders, constantly seeking for ways to beguile and frustrate, figured out a loophole that enabled them for many years to do business unfettered in Pennsylvania. They simply teamed up with unwitting or unscrupulous national banks for the purpose of carrying on business in PA.
This all changed when the Federal Depository Insurance Corporation (FDIC) issued new restrictions on banks engaged in payday lending activities. Banks that in the past gladly partnered with payday lenders like Advance America terminated these ties to comply with FDIC regulations.
Since the issuance of the new regulations, at least one payday lender, Advance America, attempted to tweak its business model in order to continue doing business in Pennsylvania while at the same time charging outrageous interest rates to Pennsylvania consumers. The result: Advance America was sued by the Pennsylvania Department of Banking.
The Post-Gazette, a popular Pittsburgh-based newspaper, has an interesting news story on its website about this issue.
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