Reining In of Payday Lenders May Fall to Courts
It now appears the state Legislature will not act in any meaningful way this year to control the burgeoning “payday advance” lending industry, which was legalized here in 1997 and is permitted to charge customers up to 911% annual interest.
Consumer groups--including the Consumers Union, California Public Interest Research Group and the American Assn. of Retired Persons--are struggling to restrict these outrageous rates. They now say that, under a new bill by state Sen. Don Perata (D-Alameda), the most that can be expected is a yearlong state study of the practices in this business.
Perata withdrew a stronger reform bill in January, under pressure from the industry lobby.
A Perata spokesman held out hope this week that “other elements” may yet be added to the new bill, but the consumer representatives don’t think more than a study will be approved, if that.
So now, as is often the case when a powerful lobby seems able to stymie legislation, the arena for action passes to the judicial system, and the only practical means of bringing relief may be a lawsuit.
One was filed Jan. 14, shortly before Perata retreated, through Public Counsel, a nonprofit group backed by the L.A. County and Beverly Hills Bar Assns.
The plaintiff is a financially strapped travel agent, Peter Rhodes of Los Angeles, whose account of 1998-99 dealings with the GoldX Payday Advance Centers alleges a range of irregularities.
I interviewed Rhodes this week. He said he was “just desperate for cash” to meet car payments and went to the GoldX office at 325 1/2 W. 5th St. in downtown Los Angeles on Aug. 7, 1998, where he wrote checks for $235 and $35, postdated two weeks, and received $200 in cash.
When the two weeks were up, Rhodes said, he did not have funds in his bank account allowing the honoring of both checks and went back to GoldX, where he rolled over the loan, writing new checks for $300 and $45, also postdated two weeks, and was told GoldX would cash his original $35 check, which he could cover, and destroy the $235 check. On this second occasion, the clerk on duty gave him $55 more in cash, he said.
Altogether, the Rhodes complaint alleges, he rolled over postdated checks 11 times by February 1999, and GoldX cashed Rhodes’ checks totaling $956.16, while giving him in toto only the $255 in cash he received on the first two occasions.
Usually, the complaint adds, GoldX did not disclose the interest rate, finance charge or amount financed, as required by state and federal law.
Rhodes’ complaint also declares that in one case, despite having told him it would destroy an earlier check, for $300, in exchange for a new one, GoldX did cash the earlier one, thus leaving his bank account lacking in funds to pay checks he had written to others.
For months, Rhodes says, his efforts to get that $300 back were unavailing, although on June 14, 1999, a law firm representing Goldx Financial Services Inc. offered, as a settlement, to pay Rhodes $711.16 in exchange for a signed release of all further liability.
But Rhodes’ attorney, Robyn C. Smith, says the offer was not accepted, because a principle was involved and Rhodes is seeking injunctive relief that would restrain the practices of the whole payday industry, not just GoldX.
“The ironic thing was, I ended up having to sell my car anyway,” Rhodes told me. “I’m alive. I have my health and I’m working, but this nearly ruined my life. These things are like cancer. They’re spreading everywhere . . . and I want people to know, it may seem like a good thing at first, but it’s not. You just have to keep giving them the fees, and they are enormous.”
*
The attorney who has been in charge of defending against the suit, Aaron P. Morris of Costa Mesa, told me that it’s wrong to connect what happened to Goldx Financial Services Inc. at all.
Morris said that firm is owned by Paul Altieri, and the GoldX office Rhodes dealt with is owned by Paul Altieri’s brother, Robert Altieri.
Morris said that if Public Counsel’s Smith does not take Paul Altieri’s Goldx out of the suit, he will bring a malicious-prosecution action against both her and Rhodes.
But Smith said she is not sure whether there is any real distinction between the two entities. She said the settlement offer came from Goldx Financial Services.
I tried to find Robert Altieri, visiting two GoldX offices that Morris said Robert Altieri owned. At both, there was only a lone employee present, and neither one admitted ever hearing of him.
Morris said I’d be hearing from Robert Altieri’s own attorney, but said he didn’t know the attorney’s name.
Later, I got a fax from Dan Duchanin of Long Beach. “I represent Robert Altieri and his business interests in the subject litigation,” he wrote. “After an initial review, I have concluded that the suit in question is without merit and will vigorously defend against it.”
It may be appropriate to ask if this case is one that could actually result, as Smith suggests, in reining in the industry as a whole.
Jim Ball, president of its lobbying group, California Financial Services Providers, says no. GoldX, he remarked, is not even a member of the group and if the allegations in the Rhodes suit are correct, its conduct is “appalling.”
“We’re diametrically opposed to the practices alleged in the lawsuit,” Ball declared. “Asking for two checks, doing rollovers. Those things should not have been done.”
Ball said he had contacted the head of Goldx Financial Services, Paul Altieri, and had been assured “that it’s not being done now.” But, Ball added, “I don’t know why it was done in the first place.”
Ball’s assurances notwithstanding, the consumer critics of the payday industry maintain that rollovers and extraordinarily high interest rates mark the industry as a whole, not just GoldX.
This is murky. But payday lending has become big in California, with 1,500 outlets and a million transactions a month. Legislation or court orders--adequate oversight at the very least--are essential.
*
Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060 or by e-mail at ken.reich@latimes.com.
