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AG sues loan company, citing sky-high lending rates

May 24, 2006 - Waco, Texas

Texas Attorney General Greg Abbott has sued a company with offices in Central Texas, contending the business has lent money at illegal interest rates of as much as 782 percent.

A lawsuit filed late last week in El Paso's 41st State District Court contends Texas Advance Internet offered loans but tried to get around state finance laws by presenting itself as an Internet company.

The business has offices near military bases in Bell, Coryell, El Paso and Bexar counties, Abbott said in a news release Tuesday.

According to the suit, people signing an Internet service contract with the company would get a $100 "rebate." The company then would charge $30 to a customer's bank account or credit card every two weeks, unless the person paid a termination fee equal to the original $100, the suit alleges. As part of the contract, customers signed an agreement promising to waive their rights to file a lawsuit against the company, the suit alleges.

Customers could access the online service only through computers at one of the company's offices.

The suit contends Texas Advance Internet was in reality offering "payday loans," or advances on money yet to be earned. The loans were to be repaid at rates well above the legal loan interest rate in Texas, 10 percent.

The suit also maintains the company, and owner John A. Gill Jr., violated Texas finance laws by giving loans without a state license and by using deceptive practices to cover its loan activity.

"These unlicensed practices are outrageous and are deliberately designed to target military families with extremely high-interest loans, putting consumers into a never-ending cycle of debt," Abbott said Tuesday.

The attorney general also has gotten a state court order to freeze the company's assets.

The lawsuit asks that the company reimburse money illegally obtained from customers and that the company pay $20,000 per violation of the Texas Deceptive Trade Practices Act and $10,000 per violation of the Texas Finance Code.

Gill, who the suit said lives in Alabama, did not appear to have a listed phone number and could not be contacted Tuesday.

People answering the phone at Texas Advance Internet offices in Copperas Cove and Killeen would not comment on the case.

Don Baylor, a policy analyst with the Austin-based nonprofit Center for Public Policy Priorities, said Tuesday that the number of businesses offering so-called payday loans has mushroomed in Texas over the last 10 years.

Baylor said the loans put an excessive burden on low-income residents, who get buried under interest in exchange for relatively small loans.

"We refer to payday loans as the meth of the financial services industry," Baylor said. "Once you get one, it becomes much more likely that you are going to get another to help pay off the first one. Many people find themselves taking out payday loan after payday loan."

News Source

Tribune-Herald, Mike Anderson, Staff Writer

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