Legalized Loan Sharking

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Former state bureaucrat named Harry L. Hooper has a confession to make.

Hooper, a 28-year lawyer and retired U.S. Marine Corps judge advocate, was confronted with a seemingly innocuous request soon after becoming general counsel to the Florida state comptroller in 1995.

McKenzie Check Advance wondered whether it could accept post-dated checks. After some legal research, Hooper and his aides responded yes.

Hooper has regretted their answer ever since.

"We did not suspect at the time that we were launching a cottage industry of small loan operators masquerading as ... check cashers," Hooper stated in an affidavit filed on behalf of debtors who are suing so-called payday lenders. One of those racketeering lawsuits, joined by state Attorney General Bob Butterworth, is pending in Hillsborough County circuit court.

In his August 2000 sworn statement, Hooper stated: "I have become a student of this question as a result of my experience in this area. I believe as a former general counsel of the Florida Department of Banking and Finance, and as an attorney who performs pro bono service at Legal Services of North Florida, that payday lending is an evil that strikes at the heart of Florida's most unfortunate citizens. I believe payday lending is predatory lending."

That did not dissuade the Florida Legislature from legalizing the practice last year.

Advance America, which acquired McKenzie Check Advance, and other payday lenders no longer need the blessing of Harry Hooper or any other state official to engage in what would otherwise be usury. In Florida, lenders normally cannot charge more than 18-percent interest on most legitimate credit transactions. The new law lifts the interest ceiling to an annualized rate of 390 percent for payday lenders.

Payday lenders can thank their Tallahassee lobbyists. They included Holland & Knight law firm heavyweights Martha Barnett, a former American Bar Association president, and Curt Kiser, an ex-state legislator from Pinellas County.

Roger B. Handberg, an assistant state attorney general who investigates economic crimes, said the new statute attempts to address one of the worst sides of payday lending. "The real problem is the rollovers, which put people into these downward spirals of debt," said Handberg.

Under the law, borrowers must wait 24 hours after repaying one payday loan before signing for another. Theoretically, that prevents borrowers from continuing to renew or "roll over" loans from one payday to the next, incurring escalating fees and interest charges along the way.

"If they have to have these loans at all, I guess this law is not that bad," said Handberg, who is leading a Butterworth probe of four payday lenders.

But payday lenders are way ahead of Florida regulators.

Consumer advocates say Advance America and other lenders are pairing up with national banks to circumvent recent state regulatory action and legislation.

"Big payday lenders don't want to comply with state laws designed to limit their

triple-digit interest rates," said Jean Ann Fox at the Consumer Federation of America. "So they are renting bank charters in a cynical attempt to avoid state consumer protections."

Payday loans — officially known now as "deferred presentment" loans in Florida — are made for up to $500 to borrowers who need immediate cash and acknowledge their bank account has insufficient funds at the time.

Borrowers write a personal check, which is sometimes post-dated. For a fee, usually $15 for every $100 in principal, borrowers sign a pledge to make good on their check within two weeks, or by next payday.

Should they have to extend the repayment period, borrowers are socked with annualized interest charges of up to 390 percent. Should a check be cashed on an account holding insufficient funds, borrowers get hit with overdraft penalties by their bank as well as new collection fees by the lender.

Neil J. Gillespie's experience with Ace Cash Express Inc. in his hometown of St. Petersburg illustrates a few of the pitfalls of borrowing from payday lenders.

In March 1998, Gillespie wrote a personal check for $336.94 in order to borrow $300 from an Ace store in South St. Petersburg. He promised to make good on the check within two weeks. When time was up, Gillespie replaced that check with a new one for the same amount and Ace let him roll over his debt for two more weeks by forking over another $36.94, this time in cash.

Gillespie is suing Ace. Butterworth has intervened on behalf of Gillespie, a payday loan victim from Tampa by the name of Eugene R. Clement, and other Ace customers.

According to court records, Gillespie rolled over payday loans at two of Ace's St. Petersburg stores more than a dozen times between March and October of 1998. By the time Gillespie got squared with Ace, he had paid $517 in interest on four $300 loans he received over the course of seven months.

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