Payday Loan Debt of 140,000 Wiped Out!

Advocates for Justice is focused on the mistreatment of consumers, particularly poor consumers, by the credit card and banking industry. Payday loans are a particularly pernicious form of exploitation by the credit industry. Public Justice, a public interest law firm based in Washington led a successful effort in North Carolina to wipe out the debts of 140,000 people.  It took six years!. These victories don’t come easily.

from Lawyers and

Debts Wiped Out for 140,000 Payday Loan Customers

September 27, 2010. By Brenda Craig

 It took six years, 17,000 billable hours, three law firms and three public justice
organizations, but in the end they managed to wrestle a payday loan company in North Carolina
into a settling with thousands of unhappy customers. “We have had great reaction from clients,”
says Paul Bland, with the Public Justice organization in Washington, DC. “The settlement was a
compromise. But we faced enormous legal challenges and we made the decision that this was a
good settlement compared to the risks going forward.”

The payday loan industry is notoriously hard-nosed and has deep pockets when it comes to
fighting lawsuits. However, Advance America, the largest payday lender in the US, agreed to pay
$18.5 million to settle a class action suit that argued it had contravened North Carolina’s state
usury laws. Class members—about 140,000 Advance America customers in North Carolina—will
get back at least some of the lending costs they paid out.

According to the suit, Advance America was charging
annual interest rates of somewhere between 350 and 500
percent. “We had one client, for example, who borrowed
$200. They made $2000 in payments to Advance America and still owed the principle,” says
Bland, who took or read at least 50 depositions in the case against Advance America and talked to
dozens of expert witnesses.

Although payday lending was declared illegal in North Carolina several years ago, Advance
America and many others continued to operate by creating an association with banks. In this case,
it was the Republic Bank.

A recent report by federal authorities cites payday loan industry’s association with both small and
large banks to avoid state regulations as a problem for consumers in the US. Paul Bland says it
amounts to banks essentially renting their charter for a fee.

“They aren’t actually taking any significant risks,” says Bland. “They aren’t underwriting the
loans; they are just lending their name to the payday lending company and then taking as much as
a 5 percent fee. Essentially, they’re operating as a shield. It’s a sham operation.
“Payday lending is a terrible financial product. It is almost like an addiction, like crack cocaine.
You get people taking out loans and they believe they are going to pay them off. By
overwhelming margins they can’t pay them off, and they end up on a debt treadmill.”
This treadmill for the North Carolina Advance America customers has finally stopped.