Advance America, the nation's largest payday lender, has agreed to pay $18.75million to settle a class-action lawsuit that accused it of charging illegally high interest rates to consumers across North Carolina.
The settlement amount will be split among more than 140,000 consumers across that state. It will also be used to cover attorney fees awarded by the court, which must approve the proposed settlement.
Awards to consumers will be as high as hundreds of dollars in some cases, said Paul Bland, one of the attorneys representing consumers in the case. Bland is senior attorney at Public Justice, a nonprofit advocacy group in Washington.
Bland said that, as far as he is aware, the settlement is the largest generated to date by a consumer lawsuit against payday lenders.
Under the settlement Advance America did not admit to any violations of state law.
"This was a business decision, which provides closure on the matter and eliminates continuing legal costs in a market where our company no longer conducts business," Advance America spokesman Jamie Fulmer said in a prepared statement.
Payday loans offer short-term cash advances to workers between paychecks. The class-action lawsuit, filed in New Hanover County Superior Court in 2004, alleged that some consumers were charged annual interest rates that exceeded 450 percent. State law caps the interest rate on short-term loans at 36 percent.
Fees kept growing
Someone who borrowed $500 could end up paying $5,000 - and still owe $500, Bland said.
"There are some people who really get on this treadmill and start getting really large sums of debt that just keep on going," he said.
North Carolina was the first state to shut down payday-lending outlets in 2001, but some payday lenders - including Advance America - continued to operate by forming partnerships with out-of-state banks, arguing that such agreements exempted them from North Carolina law.
But the state Attorney General's Office went after Advance America, which was the state's largest payday lender. Banking Commissioner Joseph Smith ruled in December 2005 that the company was illegally charging excessive rates. Ahead of that action, Advance America closed its operations in the state. The remaining payday lenders operating in the state were shut down in March 2006.
"There are very few states in which the government has been as strongly on the side of the consumer as North Carolina," Bland said.
Class-action lawsuits against four other payday lenders that operated in North Carolina are being pursued.
In the Advance America case, consumers who received payday loans on or after March 1, 2003, will be eligible for payment. Beginning in the first half of 2011, checks would be mailed to all class members who can be found. Class members do not have to take action to participate in the settlement.
"A lot of our clients are very poor," Bland said. "The sums of money that they get out of a case like this can be very, very significant to them."
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