Posted on: Thursday, September 25, 2003

N.Y. sues over payday loans

By Todd Mason
Knight Ridder News Service

New York Attorney Gen. Eliot Spitzer sued a Delaware bank and two Philadelphia-area finance companies yesterday, alleging that they violated New York interest-rate ceilings, or usury laws.

Consumer advocates hailed Spitzer for attacking payday loans, so-called because they're meant to tide borrowers over until pay day — while prodding the Federal Deposit Insurance Corp. to crack down on payday lenders.

"I hope it does more than send a message to the FDIC," said John Taylor, president of the National Community Reinvestment Coalition, Washington. "Payday lending is the most expensive, most usurious type of loan any banker could offer.

The loans, which are often renewed when borrowers can't pay, bear annual percentage rates as high as 500 percent.

"This modern-day loan-sharking scheme exploits vulnerable consumers with offers of quick cash," Spitzer said.

His suit seeks to ban payday lending by County Bank of Rehoboth Beach, Del.; Cashnet of Elkins Park, Pa.; and TC Services of Bala Cynwyd, Pa. The suit asks for restitution, damages, penalties and court costs.

"Spitzer is doing what the FDIC has failed to do," said Peter Skillern, executive director of the Community Reinvestment Association of North Carolina.

The FDIC did not return a phone call yesterday.

The Consumer Federation of America praised Spitzer, whose Wall Street litigation galvanized federal securities regulators.

"We'd love for the FDIC to get tough," said Jean Ann Fox, the federation's director of consumer protection. "For banks to be involved in this kind of business is unsafe and unsound."