NEW YORK ATTORNEY GENERAL TARGETS PAYDAY LENDERS
New York Attorney General Eliot Spitzer has sued a Delaware-chartered bank, County Bank, and two Pennsylvania-based companies, Cashnet, Inc. and TC Services Corporation d/b/a Telecash, alleging that the defendants have violated New York law by making short-term payday loans to New York residents and imposing finance charges of $30 for every $100 borrowed. Although as a state-chartered bank, County Bank may charge interest in any state at the rate permitted in its home state of Delaware (which imposes no rate limit), County Bank is the lender in name only according to the complaint. Therefore, the Attorney General asserts that in making payday loans, Cashnet and Telecash have violated New Yorks civil usury limit (16%) and criminal usury limit (25%), as well as a state law that requires a license to make loans of $25,000 or less and charge more than allowed by the civil usury statute.
The complaint advanced the following facts in support of the proposition that County Bank is not the true creditor on the loans made by Cashnet and Telecash under what the complaint labels County Banks Rent-A-Bank Agreements:
- Cashnet and Telecash provided the capital to market, advertise, originate, service and collect the loans;
- Cashnet and Telecash pay annual fees and a percentage of finance charges received to County Bank and also agree to indemnify County Bank for losses and liabilities;
- County Bank does not require borrowers to submit loan applications or undertake any credit review prior to loan transactions. Applications identify Cashnet or Telecash as the source of loans;
- Finance charges are payable to Cashnet or Telecash;
- Cashnet and Telecash collect additional fees from borrowers for extending the term of repayment without any meaningful involvement of County Bank; and
- County Bank does not share the lending risk because it receives all principal plus a part of finance charges from Cashnet and Telecash within 24 hours of origination and prior to repayment (i.e., Cashnet and Telecash retain 85-95% participation interests in the loans).
Spitzer also claims that Cashnet and Telecash have violated laws regarding fraudulent business conduct, deceptive business practices and false advertising and that County Bank has been engaging in criminal facilitation, fraudulent business conduct and deceptive business practices by aiding Cashnet and Telecash. The remedies requested include injunctive relief, restitution, damages, penalties and costs.