Payday Lending Cases

Wallace & Graham represents clients who have filed a series of lawsuits against some of North Carolina’s largest payday lenders – including Advance America, Check into Cash, and Check ’N Go. The cases were filed in 2004. The lawsuits allege that the lenders exploit poor people by luring them into quick loans that carry exorbitantly high interest rates up to 500 percent.

The lawsuits were filed in New Hanover County Superior Court by Wallace & Graham along with three public interest organizations – the North Carolina Justice Center in Raleigh, NC, the Financial Protection Law Center in Wilmington, NC, and Trial Lawyers for Public Justice in Washington, D.C. In addition, the firm of Hartzell & Whiteman in Raleigh, NC and Richard Fisher in TN have co-counseled.

The complaints allege that since 1997, these companies have been targeting low- and moderate-income North Carolina families by offering a check cashing service known as “deferred-deposit” or “payday” loans. These loans are marketed as a quick, easy way to obtain cash without undergoing a credit check.

To get a payday loan:

• A customer writes a check for the amount borrowed (usually between $200 and $500)
• Which the payday lender “holds” until the customer’s next pay day, usually two weeks later
• The customer is charged a high fee for this loan
• In a typical transaction involving a loan for $425, for example, a customer writes a check for $500, which includes a $75 fee
• On the next pay day, the customer can either pay $500 to get the check back, let the check clear the bank, or pay $75 to extend the loan for another two weeks
• The fees for many consumers translate into annual interest rates of more than 500%
• Many borrowers cannot afford to redeem their checks and are forced to choose the "roll-over” option

In 1997, payday lenders sought and received a special interest law that permitted them to charge interest rates far above the normal North Carolina usury rate. However, the law expired on August 31, 2001, thus making the practice illegal under state law.

The payday lender companies raised the defense of an arbitration clause that said that it banned class actions. The Trial Court in the case found that the class action ban was enforceable and that the cases had to go to arbitration. Thus, the Trial Court entered an Order dismissing the cases. We have appealed that Order to the North Carolina Court of Appeals. We are still awaiting the Court of Appeals’ decision.

The lawyers for the consumers in these cases include J. Jerome Hartzell of Hartzell & Whiteman in Raleigh, NC, Mona Lisa Wallace and John Hughes of Wallace & Graham in Salisbury, NC, and Richard Fisher of Cleveland, TN.

In 2004, the North Carolina Justice and Community Development Center wrote a letter to the North Carolina Banking Commissioner regarding the consumers’ position that payday lending is illegal in North Carolina. You can see a copy of that letter here.

In 2006, the North Carolina Attorney General announced that some of the largest payday lenders in North Carolina have agreed to stop doing business in our State. You can see a copy of that announcement here.