CHARLESTON, W.Va. - Four West Virginia consumers who say they were unfairly bothered after defaulting on loans that are illegal in the state had their balances wiped out in a recent agreement between West Virginia Attorney General Darrell McGraw and Advance America.
Assistant Attorney General Norman Googel said Advance America was free to make phone calls to reach those who defaulted, but took things too far when the company began contacting third parties listed as references on loan applications and traveled into West Virginia in an effort to reach their customers at home.
"They have every right to make phone calls and write letters," Googel said.
The consumers obtained "payday loans," which are short-term loans or cash advances, typically for a period of 14 day and secured by a post-dated check for the full amount of the loan including interest or other fees.
Those loans are not legal in West Virginia. Advance America, the nation's largest supplier of such loans, had 61 offices in Ohio, Pennsylvania, Kentucky and Virginia that are within 50 miles of West Virginia, according to a 2004 letter from the company to McGraw.
When the complainants went into those states to seek an Advance America loan and subsequently defaulted on it, they contacted McGraw's office because they felt the company was attempting to reach them illegally.
"The main issues, as I recall, we received some complaints that collection agents were threatening consumers over the phone that they would be criminally prosecuted unless they paid the loans," Googel said. "Also, there were some allegations that Advance America agents were contacting third parties, listed as references on the loan application, in an effort to collect the debt.
"There are some circumstances when a lender may contact a third party. Usually, the only reason is if they believe the person may have moved and they call the third party to gather what is called 'location information,' a new address or phone number.
"We have reason to believe that people simply listed as references on the loan application were being called when the person defaulted on the loan. And visits to the home was one of our main concerns."
Advance America admitted to no wrongdoing, but erased the outstanding debt on the four loans anyway. It also agreed to end the debt-collection policies that troubled McGraw.