State fines lenders for pushing borrowers into high-cost loans

High-cost lender Advance America will pay refunds to hundreds of California customers after a state regulator accused the firm of charging illegally high interest rates topping 100%.

The action, announced Monday, comes a few months after the Department of Business Oversight took actions against two similar lenders, Check Into Cash and Quick Cash Funding. The state accused all three of duping consumers or taking other improper steps to avoid complying with state interest-rate caps.

The Department of Business Oversight, which regulates private finance companies, said Advance America improperly added fees to customers’ loans, which increased their size and pushed them into a category of loans without rate caps.

The Spartanburg, S.C., company will pay fines and refunds of $160,000 to settle the state’s allegations. As part of the settlement, Advance America did not admit wrongdoing.

“California consumers deserve a zero-tolerance policy when it comes to lender practices that cause borrowers to pay higher interest rates than they should under state law,” said Department of Business Oversight Commissioner Jan Lynn Owen, who added her agency plans to remain aggressive with high-cost lenders.

California law bars lenders from charging more than a 30% interest rate on loans of up to $2,499, but above that amount there’s no limit on how much interest can be charged.

In 2016, the most recent year for which state data is available, more than half of all loans of $2,500 to $5,000 carried interest rates of 100% or more.

The Department of Business Oversight accused Advance America, Check Into Cash and Quick Cash Funding of pushing their loans to $2,500 or more by tacking on improper fees, using bait-and-switch tactics or simply lying to borrowers.

In the Advance America case, the Department of Business Oversight specifically targeted the firm’s auto-title loans, which allow the lender to seize a borrower’s car if they fail to repay.

The agency said the company would offer loans to borrowers who owed fees to the state Department of Motor Vehicles. The company would pay those fees on a borrower’s behalf and add the cost of the fees to the loan.

But the Department of Business Oversight said state law prevents such charges from being added to a loan — and without the fees, many loans would have been for less than $2,500. In 2016, all of the company’s auto-title loans charged interest rates that would be illegal for loans of less than $2,500 and more than half charged at least 100%, according to a regulatory report filed by the company.

Jamie Fulmer, a spokesman for Advance America, said the Department of Business Oversight action related to “technical issues” and that the company’s practices were “not an attempt to avoid any interest-rate cap.”

In December, the Department of Business Oversight took an enforcement action against Check Into Cash. The agency said the Cleveland, Tenn., company lied to customers, saying it was prohibited by California law from offering loans of less than $2,500.

The agency’s action against Quick Cash, in December, required the San Jose company to pay partial refunds to customers who made big payments on their loans within three days of borrowing — behavior that suggests customers asked for smaller loans but were improperly up-sold into loans of $2,500 or more.

Executives at Quick Cash and Check Into Cash did not respond to requests for comment.

All three companies will have to pay refunds, though relatively small ones. Quick Cash and Check Into Cash agreed to pay back 40% and 50%, respectively, of the excess interest borrowers paid. That amounts to about $58,000 for Quick Cash and $122,000 for Check Into Cash.

Advance America, meanwhile, will not have to pay back excess interest and agreed only to repay about $82,000 in DMV fees it tacked onto loans.

The average refunds range from $138 to $175 in the three cases. Even at the high end, that’s not enough to cover a single month of interest for a loan with a triple-digit annual interest rate.

Advance America’s website, for instance, advertises a $2,510 loan at 124% interest, with 12 monthly payments of $375. In each of the first five months, interest payments alone are more than $200.

Graciela Aponte-Diaz, California policy director for the advocacy group Center for Responsible Lending, said she is glad to see the Department of Business Oversight going after lenders for steering customers into large, high-cost loans, but also noted that the group would like to see higher refunds going to customers.

“That’s money that should have gone to pay their rent and other expenses,” she said.

Department of Business Oversight spokesman Tom Dresslar called the refund amounts “appropriate given the facts of each case and the relative egregiousness of the violations” and said he believes the agency’s actions will serve as a deterrent.

“We are not done fighting on this front by any means,” he said.

Some legislators have attempted to rein in high-cost lenders by capping interest rates on larger loans, but so far unsuccessfully. A new rate-cap proposal, Assembly Bill 2500, was introduced in February.

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