Florida files suit to open EZPawn's records
July 19, 2006 - Orlando, Florida
The Florida unit of EZCorp Inc., one of the nation's largest pawn-shop chains and payday lenders, is taking heat from state regulators who accuse it of operating unlicensed offices and stonewalling an investigation of its lending activities.
EZCorp's Florida operation, which includes EZPawn and EZPawn Money Payday Loan Store, has failed to register with the state or obtain a license to make payday loans, according to a lawsuit filed recently in state Circuit Court in Orlando.
The suit, by the Florida Office of Financial Regulation, alleges that EZPawn Florida Inc. unlawfully blocked examiners from inspecting its loan papers and other records. The suit specifically cites an instance almost three months ago involving an EZPawn store on East Colonial Drive in Orlando.
Managers at the store refused state agents access to their records, referring them to EZCorp headquarters in Austin, Texas, according to the suit. Despite a series of letters and discussions, the company has refused to cooperate with the state, regulators say.
The state's lawsuit seeks an order compelling the company to let regulators inspect the books and records at the Colonial Drive location. It also seeks an administrative fine of $1,000 a day until the company complies.
EZCorp would not comment on the suit. Its EZPawn operation has at least 18 locations in Florida, including six in Central Florida.
With annual revenue of more than $250 million, the publicly traded company ranks among the major players in the payday advance loan industry -- a controversial, quick-cash business that consumer advocates say exploits its customers with triple-digit interest rates.
Payday lenders say they provide a much-needed service -- short-term financing for people who are often strapped for cash, struggling with blemished credit records and otherwise shunned by conventional lenders and bankers.
Many states, including Florida, have passed laws that restrict payday loans. Some have capped the interest rates such lenders can charge, though Florida has not. Instead, Florida's law, passed in 2001, limits people to one $500 loan at a time, caps fees at 10 percent of the transaction amount, and bans lenders from rolling unpaid balances over into another loan.
Although regulators have launched dozens of cases against unregistered payday lenders in recent years, they have rarely encountered a case such as this, said Rick White, director of the state's securities and finance division.
"I really can't recall another case recently when we sued a company because they wouldn't allow us access to records," he said. "It's just very unusual."
The state has initiated 38 cases against unregistered payday lenders, check cashers and other financial-services businesses in the past two years, resulting in $134,000 in fines, according to White.
The state Legislature also passed a law six years ago regulating car-title loans and capping their interest rates at 30 percent.
Consumer advocates say stronger action is now needed against payday lenders such as EZCorp.
"They're certainly one of the largest, and we've received a lot of complaints about them," said Matthew Lee, co-founder of Inner City Press/Fair Finance Watch, a consumer-watchdog group based in New York City. "We applaud any state regulator who would try to sue them. The payday loan business is based on the desperation of consumers [and] not informing them about the consequences of what they're doing."
Florida regulators said, however, that their investigation of EZPawn was not triggered by consumer complaints. White, the finance division chief, said the agency became aware of EZPawn while investigating another payday lender.
"We know they are not licensed or registered," he said. "Right now we're just trying to obtain the necessary documents to determine whether they need to be registered or not."
Orlando Sentinel, Richard Burnett, Sentinel Staff Writer
EZCORP Inc. (NASDAQ: EZPW)
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