Pennsylvania lawsuit over payday lending seeks reimbursement for thousands
December 22, 2005 - Philadelphia, Pennsylvania
Thousands of people who borrowed money from one of the city's biggest check-cashing businesses should be reimbursed for the astronomical interest they were charged because the rates were illegal, according to a lawsuit filed Wednesday. Though Pennsylvania law allows licensed lenders to charge around 24 percent annual interest, the "payday loans" offered by Cash Today routinely carry rates of 400 percent to 500 percent, said Irv Ackelsberg of Community Legal Services, the plaintiffs' lead attorney. "What they're really offering is quicksand - debt quicksand," Ackelsberg said at a news conference. The suit was filed in Philadelphia Common Pleas Court on behalf of Pennsylvania residents who borrowed money from Cash Today during the past six years. It's unclear how many people that may be, but Cash Today co-owner David Frascella told the state Senate Banking and Insurance Committee earlier this month that his business had about 14,000 customers, approximately 3,000 of whom have open loans at any given time. Payday lending entails short-term, high-interest loans that provide cash advances to borrowers who use their next paycheck as collateral. Industry supporters compare payday lending to using a taxi - necessary sometimes, but not cost-efficient in the long run. Critics say the practice preys on those who can least afford it. One plaintiff in the lawsuit, 28-year-old Demryi Hill of Darby, Pa., went to Cash Today in June for a nine-day, $300 loan. The fee was $60. "I only wanted to do it one time," Hill said. Instead, said Hill, she ended up spiraling further into debt, taking out new loans to cover the old ones. She is currently carrying a $400 loan that will cost her an estimated $890 by the time it is paid in full in March. Pennsylvania law allows unlicensed lenders to charge 6 percent interest, while licensed lenders can charge about 24 percent; Hill's rates exceeded 400 percent. Cash Today is not a licensed lender, the lawsuit notes. Cash Today, which is owned by David and Larry Frascella, evaded the interest caps in two ways, the suit claims: first, by making it appear that the loans were made by County Bank of Rehoboth Beach, Del., which is not subject to Pennsylvania's rate limits, and later by creating an out-of-state Internet loan company. Telephone listings for the Frascellas could not immediately be located Wednesday; an attorney who previously represented the Frascellas did not immediately return a message left by The Associated Press. The allegations against Cash Today parallel a debate in Harrisburg about so-called "predatory" lending practices. Dueling legislation would have state lawmakers either regulate payday lending or outlaw it altogether. Legislation that passed the House in June would cap interest at 17.5 percent of the amount borrowed. But if a borrower takes a loan every two weeks, interest charges could amount to about 450 percent annually. That bill is now sitting in the Senate's Banking and Insurance Committee, as is legislation sponsored by Sen. Vincent Fumo, D-Philadelphia. Fumo's bill would outlaw what he has called the "heinous process" of payday lending.
News Source
The Star-Telegram.com, reported by Kathy Matheson, AP
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