Check cash company accused of illegal, high-interest loans

Class action suit fights practice

operators argue they are not lending money

January 21, 2000|By Greg Garland | Greg Garland,SUN STAFF

A class action suit filed in federal court yesterday accuses a Baltimore check cashing company of violating federal and state law by making short-term, high-interest loans to hundreds of consumers in Maryland.

The suit was filed on behalf of a Baltimore woman, Christina Arrington of the first block of N. Streeper St., who took out a series of loans last year at an A&B check cashing outlet on Pulaski Highway by writing postdated checks to the business.

Many check cashers accept postdated checks from people who essentially are allowed to borrow against their next paycheck -- a practice known as payday lending.

The fees on the transactions often work out to an annual interest rate of 500 percent or more, which critics say exploits the working poor. Payday lenders say they are providing a needed service.

The suit named as defendants Colleen Inc. -- which does business in Baltimore as A&B Check Cashing, Hollinswood Check Cashing and People's Check Cashing Service -- and its owners, brothers Brian I. and Alec C. Satisky.

John A. Bourgeois, one of Arrington's lawyers, said the suit could be expanded to include other payday lending companies if more people come forward with similar complaints about the practices of those companies.

The suit claims that the Satisky companies were not licensed lenders in Maryland and that they charged consumers an annual interest rate of 500 percent to 1,000 percent -- many times the state's 33 percent cap for small loans.

The suit said the Satiskys "engaged in false, misleading, and deceptive advertising, by statements that they engaged in a check cashing business for a fee when they in fact were lending money to consumers for an exorbitant rate of interest."

Brian Satisky, who heads an association of Maryland check cashing companies, said he had not seen the suit and declined to comment yesterday. His attorney, Howard I. Getlan, also wanted to review the suit before commenting.

The suit asks that the courts order the Satisky companies to comply with the interest rate limits set in Maryland law and seeks treble damages for Arrington and others harmed by the lending practices.

Payday lending has become a hot issue within the General Assembly, which plans to consider legislation regulating check-cashing companies during this session. Check cashers are not regulated by the state.

Deborah Povich, director of public policy at the Maryland Center for Community Development, said the suit "is a great opportunity to clarify the law in Maryland and affirm that loan-sharking in this state is illegal."

Several public interest groups, including Povich's, are pushing to outlaw payday lending. Check cashers say they want regulations that would exempt payday loans from the state's 33 percent annual interest rate cap on small loans.

Brian Satisky has suggested that check cashers be allowed to charge a fee of up to 20 percent on a postdated check held for two weeks. That works out to an annual interest rate of 520 percent.

Satisky and others have argued that they are not making loans but are engaging in what they call "deferred deposit transactions." They say they charge fees, not interest, on transactions meant to be short-term cash advances.

The Maryland attorney general's office, in an opinion issued in November, said it regarded the transactions as consumer loans that are subject to the state's interest rate limit and to laws regulating lenders in Maryland.

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