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Federal Lawsuit Reveals Dark Underworld of Payday Loans in Virginia

frankieleon / Creative Commons

A class-action federal lawsuit against a payday lender may break new legal ground next month. That’s when a Virginia judge could deliver a ruling that will absolve hundreds of people from loans worth about a half a million dollars. 

One day last year Donald Garrett of Richmond realized something had to give. His bills had gotten out ahead of him and he couldn’t keep up. All he needed was a hundred dollars or so, and so he went to a place he heard about on the bus — Advance Till Payday. He eventually took a loan for $100 and then forked over $200 to the company.

“And I said I appreciate you loaning me the $100. I’m sorry that I was in this bind but you helped me and I appreciate it and you won’t see me anymore. And I thought that was the end of it."

But it wasn’t the end. One day while he was receiving a dialysis treatment, he got a call. 

“And he told me that I had a balance of $260 outstanding because of the $80 a month membership fee. Where did that come from? Nobody mentioned that when they gave me the $100."

Advance Till Payday did not respond to several requests to be interviewed for this story. Experts say this kind of behavior happens all the time. 

“Unfortunately it’s a fairly common practice."

That's Joe Valenti at the Center for American Progress.

“Lenders try to do with fees the things they can’t do with interest either because it’s not legal under an interest rate cap or because it’s just something that looks excessive on its face."

Here in Virginia, that $80 monthly membership fee for a $100 loan — a loan that was sold as “interest free” — also caught the attention of the Virginia Poverty Law Center. That’s where Dana Wiggins answered a call on their hotline from a woman who said she also took out a $100 loan from Advance Till Payday, and she couldn’t figure out how she ended up owing so much money.

“She asked for the statements and they said oh well we emailed them to you and they said I don’t use email and they said oh well we set one up for you. She’s like well I can’t get into it and so they refused to send her any paper statements or even print them out for her in the office."

And so the Virginia Poverty Law Center put together a class action lawsuit, and attorney Kristi Kelly took the case into federal court. 

“It really bothered me that this defendant was getting judgments against these consumers who had to borrow $100 and getting judgments for well over $1,000 against these consumers and then actively garnishing their wages."

When the case went into settlement, though, she decided to do something she had never heard of before something that may be unprecedented. 

“We decided to forgo our attorney’s fees and costs and just eat those and instead we asked that they assign us all the judgments that they had obtained against Virginia consumers."

That’s more than seven hundred judgments the company had obtained in court against people who borrowed  $100 and fell behind on the $80 monthly fee — a combined total of about a half a million dollars. And it worked. All that money, all those judgments, are now in the possession of the Virginia Poverty Law Center, where Jay Speer is executive director. 

“Typically class actions settle with a lot of people getting sometimes a fairly small amount of money. But this is a more lasting thing. For some of these people, it might be the only negative thing on their report. If you can get it taken off it could really help them."

Next month, Speer will be headed back to court to ask for all seven hundred of those judgments to be vacated. Speer says that will help these people, but it’s just a drop in the bucket because these lenders continue to make these kinds of loans every day.

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