The Internet Payday Loan: Interest As High As 1,369 Percent

Newark, DEImagine taking out a loan and being charged an interest rate of 1,369 percent. No, this isn’t the stuff of fiction or some excerpt from a predatory movie. Rather, it remains one example of loan terms charged by an Internet payday loan enterprise called to the carpet by state legislators in Minnesota.

According to a report in the Star Tribune (6/1/13), Integrity Advance LLC was found by state officials to be doing business illegally in the state of Minnesota, and charging interest rates far above caps recognized by the state.

Payday loans have long been a mainstay for workers in need of a quick, short-term infusion of cash. The payday loan is also a bastion of workers who do not have a relationship with a traditional bank, or do not have the capacity, due to poor credit, to secure financing through traditional means, such as a bank. Interest rates for payday loans are usually much higher than standard bank fare, but according to information from the Pew Charitable Trusts, a policy think tank based in Washington, DC, “the choice to use payday loans is largely driven by unrealistic expectation and by desperation.”

With the advent of the Internet, more quick cash providers are plying their wares to a growing number of Americans with access to online lending opportunities.

However, it makes for a perfect storm of predatory lending, and the Attorney General for the state of Minnesota is only too aware of the issue - having undertaken lawsuits in recent years against eight online payday lenders found to have been operating in Minnesota without the necessary licensing and documentation to do so.

When originally questioned by the state of Minnesota about its operations, Integrity Advance denied doing business in the state. However, according to the report, Integrity later conceded having made 1,269 loans to Minnesotans. According to the investigation, Integrity was also found to have hounded clients who had successfully paid off their loans to take out new ones, either via email or through telephone calls to their homes or workplaces.

Integrity also attempted to argue, according to the report, that applying Minnesota law was unconstitutional, as Integrity’s primary business operations were located outside the state of Minnesota and lacked sufficient nexus to Minnesota. That argument was rejected by the Court. Integrity also lost on appeal, with the Minnesota state Court of Appeals refusing to review the case on grounds the decision by the lower court did not appear to be questionable.

“Unlicensed payday lenders, which willfully skirt Minnesota law, hurt consumers by charging outrageous interest rates,” Minnesota Attorney General Lori Swanson said in a statement. “We hope that today’s court ruling, together with our previous lawsuits, will make others think twice.”

Ramsey County District Judge Margaret Marrinan issued the ruling May 31 against Integrity Advance LLC, granting a motion for summary judgment by Minnesota Attorney General Swanson. Integrity was found to have routinely renewed loans and extended terms beyond 30 days, failed to provide adequate disclosure and utilized loan contracts that included a ban on class-action lawsuits.

In an interview with the Star Ledger, Judge Marrinan referenced the Internet payday loan company’s previous denial of carrying out business in Minnesota, in spite of having made more than a thousand loans to Minnesotans.

“Talk about misrepresenting things,” Marrinan said. “They lied.” In a memo attached to a restitution order, Marrinan wrote: “The supersized rate of interest reflects predatory lending of a breakthrough magnitude.”

Interest rates ran as high as 1,369 percent, according to the report.

For the Internet payday loan case, Judge Marrinan said their court initially sought a smaller amount of restitution from Integrity, but instead pursued a higher figure based on the sheer number of loans extended to Minnesotans, the fact that Integrity appeared to target those most financially vulnerable, inflated interest rates, and the fact that Integrity misrepresented its dealings and business activity in Minnesota.

Integrity Advance LLC was ordered to pay the state $7 million in combined statutory damages and civil penalties, and $705,308 in restitution to borrowers for illegal interest charges and fees. The company will also have to reimburse the state unspecified attorneys’ fees and costs incurred in the investigation and litigation of the case.

The Internet payday loan company is based in Newark, Delaware.