Published: March 29, 2009 03:14 am      

Payday loans

State trying to protect consumers

FAIRMONT — West Virginia Attorney General Darrell McGraw is working hard to stop the practices of Internet payday lenders and protect consumers.

On Tuesday morning, the state Office of the Attorney General filed one lawsuit against seven Internet payday lenders and a second lawsuit against five collection agencies.

According to Assistant Attorney General Norman Googel, the office received complaints indicating that each company was either making or collecting Internet payday loans in West Virginia. The companies are Cash Advance Now, Debt Doctor, Direct ROI, E Smart Credit Network, Island Payday, Platinum Finance Company, Sonic Cash, A.C.A. Recovery, Capital Collections, Covenant Management Group, Oasis Financial Solutions and Westbury Ventures.

“There may be hundreds of West Virginia consumers who have taken loans,” he said.

The 12 companies refused to comply when the attorney general issued an investigative subpoena requiring them to produce records of their lending and collection activities in the state, Googel said. Because those entities would not respond to the subpoena, the office proceeded to ask the court to issue an order demanding that they provide the information.

He said the activities of the companies are unlawful, and they are not licensed to make loans in the state. The attorney general’s office also requested that the court prohibit them from making and collecting Internet payday loans in West Virginia.

Googel explained that payday loans are short-term loans, usually for two weeks, that are awarded with no real credit check and expected to be repaid by the next payday. Loans issued through check cashing stores are the classic form of payday lending. At these places — which West Virginia doesn’t have — consumers borrow small amounts of money, usually $200 or $300, using a post-dated check, he said.

Generally within 14 days, the borrower must pay off the amount plus interest rates. If the person is not able to make the payment in time, more fees are added and continue to pile on for every two weeks the money is late.

Googel said consumers typically don’t have the money to pay the loan back. So to prevent their check from being cashed and their account from bouncing, they keep returning to the storefront every two weeks to pay the interest. This dangerous pattern leads them into a debt trap.

“They’ll go out and get other payday loans to pay off the first one,” he said. “They’re getting wiped out and it actually can lead consumers to foreclosure.”

Even though payday lending is illegal in West Virginia and other states, the industry has tried to find ways to get around the laws, he said.

For instance, consumers who need cash can go online to apply for Internet payday loans. Because consumers get these loans while on their home computers in West Virginia, the lenders are in fact subject to the state’s laws, Googel said.

He said Internet payday lenders deposit money into a consumer’s account and the consumer agrees to repay the amount plus interest in two weeks. The person gives the company permission to electronically debit the fee out of his or her account in 14 days.

Consumers are told that they aren’t allowed to stop those debits, which Googel said is also a sham, and they fear that if they don’t pay they’ll get in trouble.

“Until they get to (the attorney general’s office), they don’t know that they can stop it,” he said. “You have a right to stop the debits, and you need to do it right now. They just need to close their checking account and open a new one with a new number.”

Googel encouraged consumers who are victims of Internet payday lenders to contact the Consumer Protection Hotline at 1-800-368-8808 or visit www.wvago.gov to file complaints.

Even if on paper the individual hasn’t paid the loan, he or she owes nothing because the loan is unlawful, he said. The attorney general’s office will back the consumer 100 percent on this, track down the company, and help fix the problem.

“We really urge people not to get these loans because it is a trap, but we know that many more thousands have probably gotten them,” Googel said. “We want them to please call us. We’re glad to talk to anybody that is having problems with Internet payday loans. We really want to educate the public.”

McGraw’s office has been actively investigating Internet payday lending since about 2005.

“A lot of states are really looking to us for leadership, and we’re very proud of that,” Googel said. “This (predatory practice) is going on everywhere.”

“It’s a very very shadowy industry, and it operates very much off the grid. The only answer to payday lending is to ban it.”

E-mail Jessica Legge at jlegge@timeswv.com.