Online payday loan companies that charged as much as 919% interest will spend $489 million to reimburse some 555,000 borrowers, to settle a class action lawsuit filed by eight Virginians.
The lawsuit alleged that Golden Valley Lending; Silver Cloud Financial, Inc.; Mountain Summit Financial, Inc.; and Majestic Lake Financial, Inc. all formed under the laws of the Habematolel Pomo of Upper Lake tribe in California, violated federal racketeering laws as well as Virginia’s usury and consumer finance licensing laws.
It also leveled the same charges against three Kansas City, Missouri, businessmen, whose firms processed the loans, put up the capital that the tribal companies used to make the loans and collected the bulk of the profit from the business.
The firms advertised online loans for up to $1,000 with a promise that borrowers could be approved in seconds. according to the lawsuit prepared by Newport News-based Consumer Litigation Associates, the Virginia Poverty Law Center and the Kelly Guzzo firm in Fairfax.
One of the Virginians who sued, George Hengle, paid a total of $1,127 on three loans, with interest rates of 636%, 722% and 763%. Another, Steven Pike, paid $1,725 on his loan, with an interest rate of 744%, while Elwood Bumbray paid $1,561 towards a loan with a 543% interest rate and Lawrence Mwethuku paid $499.50 on a loan with an interest rate of 919%.
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Under terms of the settlement, the tribal firms will cancel $450 million of balances due from on their loans. The businessmen will pay $39 million, to be distributed to borrowers as compensation.
Virginia borrowers, along with those in 21 other states, will be get back all the money they paid the lenders that exceeded the principal amount of their loans.
Borrowers in 26 other states will be paid the difference between legal interest rates in their states and the interest they paid on their loans. Borrowers in Nevada and Utah won’t receive any reimbursement; Utah has no formal cap payday loan rates and Nevada’s cap limits payday loan interest to 25% of a borrower’s gross monthly income.
Virginia law caps loan rates at 12% unless a firm obtains a consumer finance license. For those firms, the General Assembly capped rates at 36%, after years of Daily Press reporting on high interest rate loans.
The two law firms and the poverty law center that filed the suit have filed several others against payday and online lenders over the years, including one settled for $433 million in 2019.
The poverty law center also operates a hotline where borrowers can seek help at 866-830-4501.
Dave Ress, 757-247-4535, dress@dailypress.com