Online payday loan companies that charged up to 919% interest will spend $489 million to repay some 555,000 borrowers, to settle a class action lawsuit brought by eight Virginians.
The lawsuit alleged that Golden Valley Lending; Silver Cloud Financial, Inc.; Mountain Summit Financial, Inc.; and Majestic Lake Financial, Inc., all formed under the laws of the Habematolel Pomo Tribe of the Upper Lake Tribe in California, violated federal racketeering laws as well as Virginia’s usury and credit licensing laws to consumption.
He also leveled the same charges against three Kansas City, Missouri businessmen whose companies processed the loans, provided the capital the tribal corporations used to make the loans, and collected the bulk of the profits from the company.
Companies advertised online loans of up to $1,000 with the promise that borrowers could be approved in seconds. according to the lawsuit prepared by Consumer Litigation Associates based in Newport News, the Virginia Poverty Law Center and the law firm Kelly Guzzo in Fairfax.
One of the Virginians who sued, George Hengle, paid a total of $1,127 on three loans, with interest rates of 636%, 722% and 763%. Another, Steven Pike, paid $1,725 on his loan with an interest rate of 744%, while Elwood Bumbray paid $1,561 on a loan with an interest rate of 543% and Lawrence Mwethuku paid $499.50 on a loan with an interest rate of 919%.
Under the terms of the settlement, Tribal Businesses will forgive $450 million in balances owing on their loans. The businessmen will pay $39 million, which will be distributed to the borrowers as compensation.
Borrowers in Virginia, along with those in 21 other states, will get back any money they paid to lenders that exceeded their loan principal amount.
Borrowers in 26 other states will receive the difference between their state’s statutory interest rates and the interest they paid on their loans. Nevada and Utah borrowers will not receive any refunds; Utah has no formal cap on payday loan rates, and Nevada’s cap limits interest on payday loans to 25% of the borrower’s gross monthly income.
Virginia law caps loan rates at 12% unless a business obtains a consumer credit license. For these companies, the General Assembly capped rates at 36%, after years of daily press reports of high-interest loans.
The two law firms and the Poverty Law Center that filed the lawsuit have filed several others against payday and online lenders over the years, including one settled for $433 million in 2019.
The poverty law center also operates a helpline where borrowers can call for help at 866-830-4501.
Dave Ress, 757-247-4535, [email protected]