CHARLESTON -- West Virginia Attorney General Darrell McGraw announced Wednesday that his office has reached a settlement with Internet payday lender Government Employees Credit Center and collection agency P.D. Recovery.
McGraw's office said the settlement will result in more than $300,000 in cancelled debts and refunds of interest charges for 348 West Virginia consumers.
The companies and their owners also agreed to permanently refrain from making or collecting Internet payday loans in West Virginia, the Attorney General's Office said.
"Despite the difficulty we encountered in the early stages of these investigations, I commend GECC and Dollar Financial Group, which took responsibility for the actions of its defunct subsidiary P.D. Recovery, for cooperating," McGraw said in a statement. "The companies resolved the concerns of our office by making full restitution to all consumers who obtained loans from GECC."
Internet payday loans are short-term loans or cash advances obtained by consumers on their home or workplace computers via interactive websites. The loans, which typically must be repaid in full with interest in 14 days, are secured by consumers' authorization to permit electronic payments from their checking account every two weeks. Consumers who cannot pay the full amount when due must pay a fee, often 25 percent of the amount borrowed, to "roll over" the loan for another two week period in order to avoid default.
The continuing need to roll over the loan places consumers into what regulators call a "debt spiral" in which their checking accounts are drained. In many cases, the principal never goes down. The auto fee payments, on the other hand, can continue indefinitely.
McGraw's office began investigating GECC in March 2006 after receiving complaints that the company was making illegal Internet payday loans in West Virginia.
Although GECC agreed to stop making new loans in West Virginia, it initially refused to comply with the attorney general's investigative subpoena requiring the company to disclose records of its loans to other West Virginia consumers.
Consumer complaints had shown that GECC typically charged a fee of 25 percent on each two-week loan, equal to an annual interest rate of 650 percent. West Virginia's usury laws set the maximum interest rate for such loans at 18 percent annually.
GECC's refusal led to subpoena enforcement and contempt proceedings, which were resolved as part of the current settlement.
McGraw's office also began investigating P.D. Recovery after learning that GECC had hired the subsidiary of Dollar Financial Group to collect its defaulted accounts.
According to the Attorney General's Office, P.D. Recovery was not licensed to collect any debts in West Virginia. It, too, refused to comply with McGraw's investigative subpoena.
The Kanawha Circuit Court Order agreement with GECC prohibits the company and its owner, Vincent Keith Ney, from making or collecting Internet payday loans in West Virginia in the future.
An earlier order also prohibits Dollar Financial Group and its owner, Jeffrey A. Weiss, from collecting Internet payday loans in the state.
Additionally, Dollar Financial cannot collect debts in the state without first obtaining a business license and surety bond as required by the state Tax Department.
The court's final orders settle all of the attorney general's claims against the companies and dismisses the office's previous contempt proceedings against GECC.
To date, McGraw's office has recovered $2.7 million in refunds and cancelled debts for 8,497 West Virginia consumers.