Five companies that have been collecting on illegal “payday” loans will pay more than $300,000 in restitution and penalties to the state and consumers under a settlement announced by Attorney General Eric Schneiderman Monday.
The four debt collection agencies and one debt-buying business are barred by the settlement from collecting on the loans, which violate state law because of their exorbitant interest rates. The debt-buying company, Northern Resolution Group of Amherst, also will reverse 8,550 negative reports about New York borrowers that it made to credit reporting bureaus.
“Payday lenders structure loans to discourage people from paying off the principle to keep them in this perpetual cycle of debt,” Schneiderman said at the annual convention of the Public Employees Federation, where he announced the settlement during his keynote address.
Monday’s settlement is part of a larger crackdown by Schneiderman’s office on the industry, whose short-term loans typically have interest rates from 100 percent to 650 percent or more — far above New York’s 16 percent cap for most non-bank lenders.
For example, a $500, two-week loan might be lent at a fee of $25 per $100, meaning the consumer will pay a $125 fee, equal to a 652 percent interest rate.
Consumers who can’t afford to pay the loans when they are due incur more interest, but even those who can pay often see their loan automatically renewed by the lending company, Schneiderman’s office said.
In August, the office sued three Internet lenders that investigators said charged annual interest rates for personal loans at rates ranging from 89 percent to more than 355 percent.
The agreements Monday “are one more step in our continuing fight to protect New Yorkers from a range of unfair financial schemes,” Schneiderman said, “from predatory loans to illegal foreclosures and other abuses by big financial institutions.”
None of the debt collection agencies named Monday could be reached by phone because their numbers were out of service. They are: V&R Recovery Inc. of Kenmore; RJA Capital Inc. of Buffalo; Westwood Asset Management of Buffalo and Erie Mitigation Group of Amherst.
Northern Resolution executives did not immediately respond to a phone message. The settlement prevents the company from placing $3.2 million in payday loan debt with collectors.
In addition to paying a total of $280,000 in restitution, the five companies will pay penalties ranging from $3,000 to $11,297.
The attorney general’s office did not immediately say how customers will be repaid.