After three years in court, hundreds of Montanans will see a payout from an internet-based payday lending company that violated state laws. In addition to distributing nearly a quarter-million dollars to 406 plaintiffs, a settlement announced last week will keep online payday lending off of the Supreme Court’s docket.
The complaint originated in 2011 when a woman named Tiffany Kelker sued over a $500 online loan from a Kansas-based company called LoanPoint USA. “Over a six-month period, she paid more than $2,100 to LoanPoint, but still owed the original $500 principal,” the Billings Gazette reports. Such stories are typical in the payday lending industry, which offers cash advances to desperate people and then buries them in a cycle of rapidly compounding interest and fees that is very difficult to escape. Montana is one of just 15 states that effectively bans payday lenders from their state through anti-usury laws that cap interest rates far below the triple-digit charges that the industry relies upon for its profits. State law prohibits rates above 36 percent, and Keller had been charged between 800 and 1,000 percent on the loan that precipitated the lawsuit.
Two courts, including the Montana Supreme Court, ruled in favor of Kelker and the other 405 members of the class action. The lender had appealed to the U.S. Supreme Court, which had not yet decided whether or not to take the case when the two sides reached a settlement in March.
All of the plaintiffs will have their loan debts forgiven under the deal. Roughly $66,000 out of the $233,000 package will go to attorneys and the state of Montana, and the remainder will be doled out in individual checks ranging from about $27 to nearly $3,000 depending on how much each plaintiff had paid to LoanPoint prior to joining the lawsuit.
The stratospheric rates Kelker was charged are almost standard for the payday lending industry. Rates on the loans average about 350 percent nationwide. The industry, which draws billions of dollars out of poor communities each year, has largely evaded regulation and oversight around the country in part by undermining state-level efforts to police their activities or ban their business model. Several states are weighing reform packages of varying strength, and the Consumer Financial Protection Bureau is starting to scrutinize these companies on a federal level.
That agency won an unprecedented settlement with another payday lender back in the fall that returned millions of dollars to abused borrowers in Ohio. The Ohio settlement and this month’s deal in Montana are some of the first major setbacks that short-term high-interest lenders have faced. The industry’s campaign donations have helped stymie previous crackdown attempts around the country, not only keeping usury laws off the books in more than two-thirds of the states but even convincing lawmakers in Pennsylvania to propose a rollback of that state’s ban on payday lenders.
The industry’s defenders say that the companies thrive because people have a genuine need for quick cash. With wages slack, costs of living high, and reputable banks abandoning the poorest communities, the conditions are ripe for the kind of financial desperation that would lead someone to pay $520 in fees and interest just to borrow $375. But predatory private companies aren’t the only way to meet that need. The U.S. Postal Service could provide basic banking services to those same clients at a tenth of the cost, pushing abusive lenders out of business and closing the mail agency’s budget holes in one fell swoop.