Online payday loan companies that have charged interest of up to 919% will spend $489 million to compensate about 555,000 borrowers and settle a class action lawsuit filed by eight Virginians.
The lawsuit alleged that Golden Valley Lending; SilverCloud Financial, Inc.; Mountain Summit Financial, Inc.; and Majestic Lake Financial, Inc., all incorporated under the laws of the Habematolel Pomo tribe of Upper Lake, California, violated federal anti-extortion statutes and Virginia’s usury and consumer finance license statutes.
The same charges were also brought against three Kansas City, Missouri, businessmen whose firms processed the loans, raised the capital that the tribal companies used to originate the loans, and earned most of the profits from the business.
The companies advertised online loans for up to $1,000 with promises that borrowers could be approved in seconds. according to the lawsuit, which was being prepared by Consumer Litigation Associates of Newport News, the Virginia Poverty Law Center and the law firm of Kelly Guzzo in Fairfax.
One of the Virginians who sued, George Hengle, paid a total of $1,127 for three loans at interest rates of 636%, 722%, and 763%. Another, Steven Pike, paid $1,725 for his 744% loan, while Elwood Bumbray paid $1,561 for a 543% loan and Lawrence Mwethuku $499.50 for a 919% loan .
Under the terms of the settlement, the tribal companies will cancel $450 million in balances due on their loans. The businessmen will pay $39 million, which will be distributed to borrowers as compensation.
Borrowers in Virginia and 21 other states will recover any money they paid to lenders in excess of the principal on their loans.
Borrowers in 26 other states receive the difference between the statutory interest rates in their states and the interest they paid on their loans. Borrowers in Nevada and Utah do not receive reimbursements; Utah has no formal cap on payday loan interest, and Nevada’s cap caps payday loan interest at 25% of a borrower’s gross monthly income.
Virginia law caps lending rates at 12% unless a business obtains a consumer finance license. For these companies, the AGM capped rates at 36% after years of Daily Press reporting on high-yield loans.
The two law firms and the Poverty Rights Center that filed the lawsuit have filed several others against payday and online lenders over the years, including one that settled $433 million in 2019.
The Poverty Rights Center also operates a hotline for borrowers to seek help at 866-830-4501.
Dave Ress, 757-247-4535, [email protected]