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Brother, Can You Spare a Dime (at 2,147% Interest)?

December 9, 2009

The Arizona Attorney General has sued payday lender QC Holdings for deceptive business practices and for lawsuits the company won through illegal filings. According to the AG’s office, the lender would loan money to defendants throughout Arizona (and in some cases to lenders as far away as Nevada) but then file collections lawsuits in a county far from where the lenders lived, in violation of state law.

Since lenders would be less likely to appear in courts far from home, QC won hundreds of default judgments and orders to garnish lenders’ wages that the state is now asking the court to set aside. Payday lending is already under siege in Arizona, where Attorney General Terry Goddard previously campaigned to shut the usurious businesses, citing the “cycle of indebtedness” created by the predatory high-interest, short-term loans.

QC Holdings owns nearly 600 payday loan outlets in about two dozen states, operating under many banners including Quik Cash, National Quik Cash, California Budget Finance, First Payday Loans, Nationwide Budget Finance, QC Financial Services and other names. The company lending totals nearly $1.4 billion, while 2008 revenue totaled $227.7 million.

QC Holdings is also facing a Missouri class-action suit brought by a lender who paid $1,800 interest on an initial $450 loan. The company lost an appeal based on a clause in its loan contract requiring claims to be settled by binding arbitration. A Missouri appeals court called the company’s contract “procedurally and substantively unconscionable.” The state Better Business Bureau has also supported federal legislation to end “the usurious practices” of payday lenders and called for state rules barring interest rates above 36%, mimicking other states that have effectively ended payday lending.

A 2007 study of California payday lenders, including QC Holdings subsidiary California Budget Finance, showed that the companies routinely violated consumer protection laws. Visits to hundreds of retail outlets found that 32% did not post a fee schedule; of those that did post a schedule, the majority were indiscernible or inaccurate. When asked for the APR of their loans, 70% of payday lending staff didn’t know the APR or gave an incorrect figure. Those few tellers who knew the APR reported rates ranging from a low of 460% to as high as 2,147%. The figures were inconsistent even within the same companies. Customers were however consistently offered advice and encouragement about how to obtain more loans, from different outlets of the same company and between competing companies.

Leadership of QC Holdings revolves around founder Don Early, who serves as CEO. Wife Mary Lou Early serves as the company’s Vice-Chair and Secretary (she was previously Vice-President and Chief Operating Officer, but really, what’s the difference?), while her son Darrin Andersen is company President. In 2008, Don Early made just over $1 million in total, while his wife took home another $756,503, and Andersen pulled in another $1.17 million.

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