THE TOUGH CUSTOMER- $85,000 solution: Local lender settles with state

A story I began covering last December about car title lending ["Predatory practices? Car title lender back-pedals," December 13, 2007], one of the several forms of high-interest consumer lending that flourishes in our state, saw its denouement in Richmond's Circuit Court last week.

Instant Cash, the local lender that was the subject of the column for having run afoul of legal requirements, entered into a consent judgment with the Virginia Attorney General's office.

Instant Cash's owner, Nicholas Gianakos, was also a party to the July 18 consent judgment, court documents show.

Under the judgment, Instant Cash will repay $264 to nine borrowers for finance charges it collected on loans. That may not seem like a lot, but Instant Cash also agreed not to collect on some $72,760 in interest payments charged to 128 other borrowers.

It also agreed to pay $12,000 to reimburse the State for attorneys' fees.

This all started when Estelle Williams, who lives on a fixed income in an apartment on Pantops, called me because Instant Cash has repossessed her car pursuant to a car title loan she had taken out some two years earlier. Williams told me that she had been paying around $60 per month on her $230 loan from Instant Cash for more than a year and a half– a total of approximately $1,000 based on her figures– but she had barely made a dent in repaying the principal amount. 

A look at her loan documents revealed why. The annual interest was 240 percent.

Shortly after I called Instant Cash to ask about Williams' loan, they returned her car and canceled the rest of her loan.

I was surprised to discover that those kinds of interest rates were perfectly legal in Virginia, although the lending practices, which frequently trap borrowers in an unending cycle of debt, are often characterized by critics as predatory. 

Still, there are some basic legal requirements that lenders must meet, and as James Speer, executive director of the Virginia Poverty Law Center and a harsh critic of predatory lending told me, some of the smaller operators "went to scam school and flunked out."

Apparently, that was the case with Instant Cash. As I looked over Williams' loan documents and learned more about the little extant law governing this area, I thought her loan looked fishy, so I brought it to the attention of the Virginia Attorney General. ["240 percent: Why the AG's looking at car loans," January 10].

Over the next several months, I sought updates from the AG's office several times, but was told, in so many words, "Don't call us, we'll call you."

I had been thinking for a while about writing a column wondering what, if anything, the AG was doing, when a press release arrived saying it had taken legal action against Instant Cash, and even crediting me and the Hook for bringing the matter to light, among other things– indicating that procrastination can be a virtue, which I mentioned in my May 15 column.

This consent judgment is the resolution of that legal action.

Virginia legislators had been trying for three years to reform Virginia laws governing payday loans, the most popular variety of predatory lending in Virginia, to limit allowable interest to 36 percent per year. But supporters of the annual $1.4 billion industry would not accept a cap on allowable interest rates. This year, finally, legislators passed compromise reform legislation that advocates of reform both panned as inadequate and praised as the best they could hope for ["Half a loaf? Does lending reform go far enough?" March 13].

Until the General Assembly decides to provide citizens of the Commonwealth with stronger protection from predatory lending by outlawing it, expressly limiting allowable interest, or imposing more stringent regulations, abuses will likely continue to occur, notwithstanding actions like the one the Attorney General took against Instant Cash.

But ineffective as it may be, payday and car title lenders in the state would be well-advised to make sure they are at least following existing law.

There are more Estelle Williams out there. They are not afraid. They are mad. And they are looking to even the score.

Got a consumer situation? Call the Hook newsroom at 434-295-8700x405 or e-mail the Tough Customer directly.

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