NEW YORK (Legal Newsline) - New Yorkers victimized by two companies operating a payday loan scheme will receive portions of a $5.2 million settlement, state Attorney General Andrew M. Cuomo has announced.
County Bank of Rehoboth Beach, Del., and TC Services Corp., doing business as Telecash, an out-of-state financial company operating an illegal payday loan scheme, have agreed to pay New York consumers refunds as well as an additional $300,000 in penalties and costs. The companies are also prohibited by the settlement from collecting on any outstanding payday loans made to New York consumers.
"This 'payday loan' scheme lured financially vulnerable borrowers into high-cost short term payday loans with exorbitant interest rates, trapping many of these individuals and families in a cycle of mounting debt," Cuomo said.
"These unscrupulous lenders must return to New York consumers the excessive interest rates they charged, and hopefully help these consumers break the cycle of debt created by this payday loan scheme."
Cuomo's complaint alleged that Pennsylvania-based payday lenders Telecash and CRA Services, Inc., doing business as Cashnet, made thousands of illegal payday loans to New York consumers as part of an elaborate and fraudulent "rent-a-bank" scheme with County Bank.
Telecash and Cashnet disguised their payday loans as being made by County Bank as part of their agreement with the bank. Federal banking laws allow state or nationally chartered banks to make loans throughout the United States at the interest rates permitted under the bank's home state.
New York prohibits making loans at interest rates about 16 percent, however, Delaware does not limit the amount of interest that can be charged on a loan. The agreement between the companies allowed for higher interest rate payday loans within the state of New York.
Cashnet, which is now defunct, was part of the scheme but will not contribute to the settlement.
More than 14,000 New York consumers fell victim to the defendants' scheme, particularly those living in Brooklyn and the Bronx. Restitution for the victims will range from $10 to more than $4,500, with the amount to be based on a formula according to the amount of interest paid.