California regulators want to seize Cash America Advance’s license, alleging the storefront lender duped customers into taking out installment loans with triple-digit interest rates.
The California Department of Business Oversight, in a legal accusation filed late last month, said Cash America only offers loans of at least $2,600 but did not disclose that minimum in advertisements. When customers sought smaller loans, Cash America would offer loans of $2,600 and tell borrowers they could simply give back the extra, according to the accusation.
But pushing customers to borrow more than they wanted allowed the company to charge dramatically higher interest rates. Under California law, interest on loans of up to $2,499 is capped at between 20% and 30%. But for loans of $2,500 and up, there’s no cap.
Many lenders say they cannot make loans profitably under the rate cap and state in their advertising they only offer loans of at least $2,500. The DBO accused Cash America of false advertising that didn’t make its minimum loan size clear.
Between 2012 and last year, Cash America made more than 13,000 loans for $2,600 each, and charged interest averaging 164%. About 44% of borrowers made a payment before their first payment was due, and about 20% made a payment within three days of getting their loans, according to the accusation.
DBO Commissioner Jan Lynn Owen said the early repayments found at Cash America are indicative of customers being pushed into loans that were greater than they wanted.
“Consumers shouldn’t be put in a loan where they don’t know they’re getting charged excessive rates,” Owen said. “They should be reimbursed if they didn’t want to pay for a loan that’s over $2,500.”
The agency also accused Cash America of improperly requiring customers to take out several payday loans — smaller loans that are paid off in a lump sum instead of in monthly installments — before offering installment loans.
Cash America is a unit of FirstCash, a publicly traded lender and pawn shop operator based in Forth Worth, Texas. It has 11 California storefronts where it offers loans, according to a public filing.
Ashley Velasquez, a spokeswoman for FirstCash, said the company disputes the accusations.
“We have always dealt with our customers respectfully and honestly,” she said in an emailed statement. “We strongly disagree with the legal and factual basis of the allegations and cannot further comment on this pending case.”
The company has requested a hearing with an administrative law judge, a DBO official said.
Cash America is just the latest lender accused of steering customers into larger loans for the express purpose of being able to charge higher interest rates.
The DBO accused Orange County lender CashCall of similar practices in 2014 and reached a $1 million settlement with the company the following year.
Earlier this year, the department reached settlements with three more companies — Advance America, Check Into Cash and Quick Cash Funding — over various practices the department said were aimed at improperly pushing loans above the $2,500 threshold.
Owen said examiners several years ago began noticing large numbers of customers making big payments within days, sometimes on the same day, of taking out loans. Since then, she said policing for these practices has been a higher priority.
“The abuse was starting to be very clear, and we didn’t want consumers to continue to be abused,” she said.
Follow me: @jrkoren