ABUSIVE LENDING TACTICS DRAW PA LAWSUIT

Advance America stopped offering payday loans in Pennsylvania earlier in 2006 when the FDIC clamped down on banks that were "partnering" with payday lenders. Unwilling to let go of its lucrative income from abusive credit offerings, however, Advance America tried another tack in its efforts to "take advantage of hard-working, hard-pressed families," according to a press release from PA Governor Rendell's office.

According to the Governor, the PA Department of Banking filed a complaint against NCAS of Delaware, LLC, d/b/a Advance America Cash Advance Centers, which operates 100 offices in the Keystone State. The suit alleges that Advance America offers a "Choice Line of Credit," which requires its clients to pay $149.95 per month for membership, whether or not the consumer borrows money. The contract allegedly charges interest at 5.98 percent, and permits payments of as little as $20 per month (in addition to the membership fee). Governor Rendell called the product "outrageous," and pointed out that a consumer paying minimum $20 payments on a $500 loan would pay back more than $4,000 over two years.

The Department of Banking suit alleges that Advance America is an unlicensed lender in the commonwealth, and is therefore limited to total charges of 6 percent per annum under state law, and terms the monthly participation fee "a sham" designed to charge usurious interest rates.

This Pennsylvania case illustrates the lengths that some non-bank lenders will go to in order to make high-cost loans available to anyone desperate enough to be lured into their traps. In this case, it appears that Advance America is trying to make it look like its 5.98% interest rate and $20 mimimum monthly payment are borrower-friendly. The use of the terms "membership fee" or "participation fee" is nothing more than an attempt to cloak an additional $150 monthly cost of borrowing in more respectable clothing.

Under Federal Truth in Lending rules, the participation fee is not a finance charge, and it may be excluded from the calculation of the Annual Percentage Rate that is disclosed in order to help consumers compare the costs of credit offered under different programs. However, it's easy to see that this monthly $150 cost to participate in Advance America's loan program is a cost of acquiring credit from them that a consumer should consider when doing that comparison shopping.

The Pennsylvania Department of Banking thinks so when it claims that the membership fee is a "sham."

We agree.

Consumers need to carefully review ALL of the costs of borrowing before committing to any loan contract.