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Payday-loan businesses still operate

January 12, 2006 - Greensboro, North Carolina

Businesses that loan consumers money until payday continue to operate in North Carolina despite a ruling condemning their business practices by the state's leading banking official.

N.C. Banking Commissioner Joseph Smith Jr. ordered one of the nation's largest so-called "payday lenders," Advance America, to close last month, saying the business violated the state's lending laws.

But Advance America has appealed that ruling to the full banking commission, and other similar businesses continue to operate, saying Smith's order doesn't apply to them.

Jabo Covert, vice president of legal and government relations for Check Into Cash, which operates about 40 stores in the state, said the ruling did not apply to anyone but Spartanburg, S.C.-based Advance America.

But he added that "the bottom line is ... the General Assembly needs to address the problem and pass a regulatory bill that deals with the issue. North Carolina is trying to make itself an island."

About 40 states permit payday lenders to operate within their borders. From 1997 to 2001, North Carolina did, too. But the state legislature let the law allowing payday lenders to operate expire and did not renew it.

Payday lenders got around that by partnering with out-of-state banks that acted as agents for the companies, which previously pre-empted state regulation under the Federal Deposit Insurance Act.

Customers who use such businesses write a check, post-dated to their payday, that includes the loan amount plus interest, generally a minimum of about $15 for every $100 loaned.

Payday lenders can charge interest rates exceeding 400 percent per year. But state law caps annual rates on small loans such as those sold at payday lenders at 36 percent.

Critics say payday lenders trap consumers in debt cycles.

The industry and other supporters say the stores provide a service that consumers want and do not have access to through banks.

Before Smith's ruling, Advance America had stopped selling loans in its 117 stores in North Carolina because First Fidelity Bank of Burke, S.D., said it was suspending its arrangement with the company.

Advance America appealed Smith's December ruling to the banking commission. Company attorney Saul Pilchen said he does not know when a decision will be made.

A spokeswoman for Smith declined to comment on the case and how it might affect other payday lenders.

A spokeswoman for N.C. Attorney General Roy Cooper declined to say if his office would file individual lawsuits against the other payday lenders in the state.

News Source

News & Record, Marta Hummel, Staff Writer

Related Stories - Advance America Cash Advance Centers Inc. (NYSE: AEA)

Related Stories - North Carolina

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