Consumer Finance Insights
December 18, 2015

West Virginia Reaches $13 Million Settlement With Payday Lender

On November 25, 2015, the West Virginia Attorney General announced a $13 million settlement with a non-bank payday lender to finally resolve alleged abusive debt collections and usury rates violating the West Virginia Consumer Credit and Protection Act and other state law.    According to a May 2014 West Virginia Supreme Court of Appeals ruling affirming trial court orders against the payday lender, the payday lender had marketing agreements with a federally-insured bank under which the bank originated small unsecured loans to 292 consumers at between 59% and 96% interest, and the payday lender bought these loans within days of origination.  Eventually, 212 of the 292 consumers defaulted on their loans.  And the payday lender made a total of 84,371 debt collection calls to the 292 consumers, with some consumers receiving over 1,000 calls.

The Attorney General had alleged that the payday lender was using a “rent-a-bank” scheme in order to invoke federal preemption under the Federal Deposit Insurance Act (FDIA) and avoid the state’s usury and consumer protection laws.  The Southern District of Virginia ruled that the FDIA did not apply to non-bank entities like the payday lender and remanded the case back to state court.  The state court determined that the loans were unlawful and canceled them.  In addition, the court imposed civil penalties.  After the West Virginia Supreme Court of Appeals affirmed, an appeal to the U.S. Supreme Court for a portion of the judgment was also denied in May 2015.

Under the settlement, the $13 million will be distributed to the affected consumers.