The Commonwealth Court of Pennsylvania Uses Small Loan Law to Issue Injunction Against Pay Day Lender
By Stephen Otto, Pennsylvania Bankruptcy Attorney on Oct 19, 2007 in Bankruptcy Myths, Benefits of Bankruptcy, Collection Issues, Consumer Protection, Debt Collector Abuses, General Bankruptcy Information, Lawyer to Lawyer, Pennsylvania
On July 31, 2007, Judge Bernard McGinley of the Commonwealth Court granted summary judgment in favor of the Pennsylvania Department of Banking and against NCAS of Delaware, LLC d/b/a Advance America Cash Advance Centers for violation of the Consumer Discount Company Act (CDCA), located at 7 Pa. Stat. Ann. §§ 6201-6219. (I would like to include a link to this statute; however, Pennsylvania remains the only state in the country not to publish an official copy of its statutes online. Please, if you are a reader with any influence in PA’s legislature, address this issue with our lawmakers in Harrisburg!) Read this news in conjunction my earlier post about the status of “payday lenders” in Pennsylvania.
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 Court found that while Advance America advertised an interest rate of 5.98% for its loans, Advance America charged a “Monthly Participation Fee” of $149.50. Under the CDCA, the stated interest as well as any additional loan charges may be considered when computing interest for purposes of the CDCA. The Court found that when the Monthly Participation Fee is taken into account, the actual interest rate on a hypothetical loan of $500 is 368%.
The Court made special mention of the “thoughtful and comprehensive” the amicus brief filed jointly by Community Legal Services, Inc. and the Pennsylvania AFL-CIO.
The failure of Advance America to disclose the true cost of its loans by actively misrepresnting the loans as having interest rates of 5.98% is sadly a tactic that is typical of not only payday lenders, but predatory lenders generally. Similar tactics designed to entice consumers into signing usurious commitments have been observed in recent years most notably within the mortgage industry. Consumers of typical sophistication will frequently be fooled by these tactics, and middle class financial stability is sacrificed at the altar of the profits of a few dishonest men. Unfortunately, this was not the abuse which the Bankruptcy Abuse Prevention Act and Consumer Protection Law of 2005 sought to curb, nor were these the types of consumers which the Act sought to “protect”.
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