Lender Agrees to Change Practices; Borrowers Entitled to Receive Refunds
AARP today announced a Texas federal judge's final approval of the settlement of a nationwide class action lawsuit that alleged that ACE Cash Express, Inc. and Goleta National Bank made payday loans in violation of state usury and other laws that limit interest rates on short-term loans. Under the terms of the settlement, for a two-year period Goleta has agreed not to make payday loans and ACE has agreed that its future payday loans will comply with applicable payday lending laws in most states. The January 1, 2003 termination of the ACE-Goleta relationship was attributable in large part to the efforts of the plaintiff and the plaintiff's counsel in this case.
The lawsuit alleged that ACE was the actual lender in its payday lending transactions, but had established a relationship with Goleta, and claimed that Goleta was the lender. This would allow ACE and Goleta to take advantage of a national bank's ability to export the interest rate allowed by its home state, and thus avoid interest rate caps imposed in the states where it does business. ACE and Goleta denied any liability or wrongdoing and maintain that all loans were made in accordance with applicable laws.
Under the settlement, ACE will pay at least $2.5 million to benefit class members, including refunds to borrowers in amounts ranging from $7.50 to $45.00 based on each borrower's pro rata share of the total finance charges. If the refunds and associated costs total less than $2.5 million, ACE will pay the remainder to certain educational and consumer organizations. In connection with the settlement, Goleta has already forgiven all loans that remain unpaid from approximately 200,000 borrowers and has stopped all further efforts to collect on those loans.
"AARP has worked very hard to enact state laws and regulations that protect the rights of consumers who cannot obtain credit from mainstream lenders. I am pleased that plaintiffs were able to obtain significant relief for these consumers and to help change industry practices. AARP will remain vigilant in its efforts to enact and enforce such protections," said Deborah Zuckerman, an AARP attorney who served as co-counsel for the borrowers.
"In addition to the high rates on payday loans, cash-strapped borrowers who cannot repay their loans when they become due often roll them over, getting on a debt treadmill they can ill afford," Zuckerman said. Under the settlement, ACE currently provides payday loan documents that include a notice to borrowers that these are expensive loans and are not intended to meet long-term cash needs.
Other class counsel in Purdie, et al. v. ACE Cash Express, Inc. and Goleta National Bank, CA No. 301-CV1754-X, filed in U.S. District Court for the Northern District of Texas, are Gary Peller, Professor of Law, Georgetown University Law Center, David Marshall, Law Offices of David Marshall, both of Washington, DC; Stephen Gardner, Law Offices of Stephen Gardner, P.C., Dallas, TX; James McMillen, McMillen Law Firm, Corpus Christi, TX; and Russell J. (Jack) Drake & Charlene Ford, Whatley, Drake, LLC, Birmingham, AL. The class in Purdie encompasses narrower purported classes in similar cases pending against the defendants in Maryland, Florida, Indiana, and Virginia.
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