Five Erie County companies that have been collecting debt on short-term “payday” loans will pay more than $300,000 in restitution and penalties and will cease making further collections in New York State, under a settlement announced today by the state Attorney General’s Office.
“Payday loans trap thousands of New Yorkers in a cycle of debt and prey on vulnerable consumers, all for the financial benefit of debt collectors,” said Attorney General Eric T. Schneiderman, who is scheduled to speak this morning in Buffalo at the annual convention of the state Public Employees Federation. “Unfortunately for those companies, payday loans are also illegal, and my office will continue to crack down on an industry that exploits desperate consumers across our state.”
The settlements – resulting in roughly $279,606 in restitution and $29,606 in penalties – were handled by Assistant Attorney General James M. Morrissey. The companies involved, and their locations, are:
• V&R Recovery, which does business as Alexander & Stefano, 3411 Delaware Ave., Town of Tonawanda.
• RJA Capital, 461 Ellicott St., Buffalo.
• Westwood Asset Management, 2316 Delaware Ave., Buffalo.
• Erie Mitigation Group, 3711 California Road, Orchard Park.
• Northern Resolution Group, 501 John James Audubon Parkway, Amherst.
One company, which wasn’t specified, was required to reverse 8,550 negative credit reports it had made to credit-reporting bureaus and is prohibited from collecting on payday loans taken out by New Yorkers, Schneiderman said. All of the companies will be prohibited from collecting on such loans from New Yorkers in the future.
In August, Schneiderman filed a lawsuit against online lenders Western Sky and WS Funding, based in South Dakota, and CashCall, based in California, for taking advantage of consumers by charging interest rates that were well above New York’s usury caps.
Payday loans – which ostensibly are to be repaid on the borrower’s next payday – typically have annual interest rates from 100 percent to 650 percent or more, Schneiderman said. Under state law, the maximum rate allowed is 16 percent for most non-bank lenders not licensed by the state; the online lenders being sued aren’t licensed in New York.
Payday loan borrowers are charged a fee for each $100, Schneiderman explained. For a $500, two-week loan at $25 per $100, a borrower would pay a $125 fee – an interest rate of 652 percent, he said.
The borrowers also must give lenders electronic access to their accounts for depositing the loan funds and withdrawing payments. But often, the lender will withdraw only the fee and will roll over the principal to the next payday. Some lenders permit interest-only payments for several pay periods, Schneiderman said.
In the example of the $500, two-week loan, if the loan is rolled over three times, the borrower would pay $500 in interest for an eight-week, $500 loan, Schneiderman said.
Payday loans also hurt the national economy, the attorney general said, citing a study released in March by the Insight Center for Community Economic Development, a national research, consulting and legal organization dedicated to building economic health in disenfranchised communities.
The center reported that while payday lending generates economic activity, its costs reduce household spending.
In 2011, for each dollar of payday lending interest paid, an estimated 24 cents was lost to the U.S. economy. The losses, in 33 states, cost the American economy $774 million that year, according to the study.
Further, payday lending in 2011 caused an estimated 56,250 Chapter 13 bankruptcies, the center reported. With an average cost of $3,000 per bankruptcy, those losses totaled an additional $169 million. New York was not among the states included in the study.