Payday lender to settle with Virginia for $85,000

One of the nation's biggest payday lenders will pay the state $85,000 to settle allegations it violated consumer-finance law in 119 instances.

Regulators from the State Corporation Commission found the violations during an audit of Advance America Inc. last year.

Payday loans are very short-term loans -- typically for about two weeks or until the borrower's next paycheck. Although the payback amount can range from $15 to $30 per $100 borrowed, that's the equivalent of an annual interest rate of as much as 400 percent.

The audit at Advance America, which operates 150 outlets in Virginia, found:

• 38 cases in which Advance America allegedly took an interest in property to secure a loan, which state law bans;

• four cases in which Advance America made more than a single loan at a time to a borrower;

• 22 cases when Advance America took post-dated checks as security for, or repayment of, a loan;

• 41 cases in which loan agreements were not properly completed;

• two cases in which borrowers weren't allowed to make partial payments without penalty;

• six cases in which Advance America didn't give borrowers written notices required by state law about the risks of payday loans;

• six cases in which checks given as security for payday loans weren't properly endorsed.

"These were basically technical violations," said Advance America spokesman Jamie Fulmer. "The quality of the product customers received was not affected."

But they show people aren't being treated the right way, said Irene Leech, president of the Virginia Citizens Consumer Council, a nonprofit consumer advocacy group that has long urged tighter controls over the loans.

"It's good to see the commission act and to have some proof about what's going on," she said.

But Leech said the settlement payment was a small amount for Advance America. It made a $38 million profit on revenue of $676 million from its operations in the U.S., Canada and Britain last year.

The largest settlement paid by a payday lender in Virginia was for $100,000, from a 2007 case involving Eastern Specialty Finance Inc. which does business as Check'N Go.

Consumer groups say borrowers can easily get in over their heads if they take out more than one loan at a time, or use payday loans often, and they worry that the high cost of the loans isn't made clear enough in disclosures.

Virginia has enacted rules to limit how much and how often people can borrow from payday lenders, and says lenders can only make one loan at a time to a borrower.

This year, the legislature tightened the law again by barring payday lenders from simultaneously offering both payday loans and open-ended loans, as some had been.

An open-ended loan, like a credit card, allows borrowers to maintain balances as long as they make minimum payments.

Since then, the number of traditional payday lenders and loans in Virginia has declined, as many of the firms abandon payday loans to focus on open-ended loans.

Contact David Ress at (804) 649-6051 or .