Cash Advance brief 8-26-2009 final - AARP

Certification of Word Count: 8104

SUPREME COURT, STATE OF COLORADO 2 East 14th Avenue Denver, Colorado 80203

On Certiorari to the Colorado Court of Appeals Hon. RUSSELL E. CARPARELLI, STEVEN L. BERNARD, and KAREN S. METZGER, Judges, Case No. 07CA0582 District Court, City and County of Denver Hon. ROBERT S. HYATT, Judge Case Nos. 05CV1143 and 05CV1144

CASH ADVANCE and PREFERRED CASH LOANS,

COURT USE ONLY Case No.: 08SC639

Petitioners/Cross-Respondents,

v.

STATE OF COLORADO ex rel. JOHN W. SUTHERS, ATTORNEY GENERAL FOR THE STATE OF COLORADO, and LAURA E. UDIS, ADMINISTRATOR, UNIFORM CONSUMER CREDIT CODE,

Respondents/Cross-Petitioners. Rick Wynkoop Atty. Reg. # 32006 Wynkoop & Thomas P.C. 4410 Yates Street Denver, CO 80212 (720) 855-0451

Of Counsel: Julie Nepveu D.C. Bar No. 458305 AARP Foundation Litigation Michael Schuster D.C. Bar No. 934133 AARP 601 E Street, NW Washington, DC 20049 202-434-2060 On the Brief for Amici Curiae

BRIEF AMICUS CURIAE OF AARP, CENTER FOR RESPONSIBLE LENDING, CONSUMER FEDERATION OF AMERICA, NATIONAL ASSOCIATION OF CONSUMER ADVOCATES, AND NATIONAL CONSUMER LAW CENTER

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................................................................................... iii

STATEMENT OF INTEREST..................................................................................1

SUMMARY OF ARGUMENT .................................................................................2

ARGUMENT .............................................................................................................4

I. THE ATTORNEY GENERAL SHOULD BE ALLOWED TO INVESTIGATE IN ORDER TO PROTECT CONSUMERS ........................4

A. The Colorado Legislature Has Acted To Protect Vulnerable Consumers From Excessive Fees Charged By Payday Lenders .................................................................4

1. Payday Lenders Target Vulnerable Borrowers...........................6

2. High Interest Rates Trap Borrowers In Cycle Of Debt ..............8

3. Rollover Fees Add To Borrower's Burdens ...............................9

B. Usury Laws Are Intended To Protect Needy Borrowers With Little Bargaining Power .............................................................11

C. High-Interest Lenders Evade Usury Laws Through Deft Maneuvering And Exploiting Regulatory Loopholes.........................13

D. Borrowers Are Increasingly Vulnerable To Payday Lending Industry That Is Growing Larger, More Centralized, And More Sophisticated......................................................................17

II. COLORADO COURTS SHOULD LOOK BEYOND LENDERS' RUSES TO GIVE EFFECT TO LEGISLATIVE INTENT TO PROTECT CONSUMERS ......................................................21

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A. Colorado Courts Have Recognized the Importance Of Examining Substance, Not Merely Form.......................................21

B. Payday Lenders' Association With Tribes Should Be Scrutinized To Determine Whether It Is Merely A Ruse To Evade Regulation And Enforcement ................................24 1. Lenders' Attempts To Evade Regulation By Associating With Sovereign Entities Rejected As "Rent-a-Tribe" Ruse .....24 2. Courts And Regulators Reject Lenders Attempts To "Rent" Out-Of-State Banks To Avoid State Interest Caps And Enforcement Actions................................................28 3. Internet Payday Lenders Are Not Above the Law....................32 4. Courts And Regulators Reject Payday Lenders' Attempts To Mischaracterize Loans .........................................34 5. Courts Reject Attempts To Disguise Payday Loans As Sales Of Gift Certificates..........................................36 6. Courts Reject Attempts To Disguise Payday Loans As Internet Service Deals...............................................37

CONCLUSION ........................................................................................................38

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Table of Authorities Federal Cases Aldens, Inc. v. Ryan, 571 F.2d 1159 (10th Cir. 1978) .............................................34 Bankwest v. Baker, 324 F.Supp. 2d 1333 (N.D. Ga. 2004),

aff'd, 411 F.3d 1289 (11th Cir. 2005), prior decisions vacated as moot, 446 F.3d 1358 (11th Cir. 2006).........................................30 Brown v. Morris, Cowp. Rep. 792 ..........................................................................11 Betts v. Advance America, 213 F.R.D. 466 (M.D. Fla. 2003) .................................35 Cash American Net v. Commonwealth, ---A.2d---, 2009 WL 1974998 (Pa. Comm. Ct. 2009) (appeal pending) .......................................................38 Cashback Catalog Sales, Inc. v. Price, 102 F. Supp. 2d 1375 (S.D. Ga. 2000)......36 Cooper v. QC Financial Services, Inc., 503 F. Supp. 2d 1266 (D. Ariz. 2007)........9 Ford Motor Co. v. Texas Dep't of Transp., 264 F.3d 493 (5th Cir. 2001) ..............34 Goleta Nat'l Bank v. Lingerfelt, 211 F. Supp. 2d 711 (E.D.N.C. 2002)..................30 Purdie v. ACE Cash Express, Inc., No. Civ. A. 301CV1754L, 2003 WL 22976611 (N.D. Tex. Dec. 11, 2003)............................................29 Quik Payday v. Stork, 549 F.3d 1302 (10th Cir. 2008) ..................................... 33-34 Quik Payday, Inc. v. Stork, 509 F. Supp.2d 974 (D. Kan. 2007) ............................34 State ex rel. Salazar v. ACE Cash Express, Inc., 188 F. Supp. 2d 1282 (D. Colo. 2002) ..........................................................29 West Virginia v. CashCall, Inc., 605 F. Supp. 2d 781 (S.D.W.V. 2009) ................28 Whitworth & Yancey v. Adams, 26 Va. (5 Rand.) 333 (1827) ................................11

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State Cases Agua Caliente Band of Cahuilla Indians v. Super. Ct., 148 P.3d 1126 (2006).......25 Ameriloan v. Super. Ct., 169 Cal.App.4th 81 (2009) ..............................................25 Aple Auto Cash Express of Okla., Inc. v. State ex rel. Oklahoma Dep't of

Consumer Credit, 78 P.3d 1231 (Okla. 2003)...............................................22 Austin v. Alabama Check Cashers Ass'n, 936 So.2d 1014 (Ala. 2005)...................35 BankWest, Inc. v. Oxendine, 598 S.E.2d 343 (Ga. Ct. App. 2004) .........................29 Blackstock v. Robertson, 42 Colo. 472, 94 P. 336 (1908) .......................................23 Borcherdt v. Favor, 16 Colo. App. 406, 66 P. 251 (1901) ......................................23 Cavanaugh v. People, 61 Colo. 292, 157 P. 200 (1916) .........................................24 Johnson v. The Cash Store, 68 P.3d 1099 (Wash. Ct. App. 2003)............................9 McGhee v. Arkansas State Bd. of Collection Agencies,

---S.W.3d---, 375 Ark. 52 (Ark. 2008) ..........................................................35 McKenzie Check Advance of Fla., LLC. v. Betts, 928 So.2d 1204 (Fla. 2006).......35 New York ex rel. Spitzer v. County Bank of Rehoboth DE,

Case No. 1:03-CV-1320 (N.D.N.Y. May 25, 2004) ....................................29 People v. JAG NY, 794 N.Y.S.2d 488 (App. Div. 2005).........................................36 Rocky Mountain Gold Mines, Inc. v. Gold, Silver & Tungsten, Inc.,

104 Colo. 478, 93 P.2d 973 (1939) ...............................................................23 Scarr v. Boyer, 818 P.2d 381 (Mont. 1991).............................................................11 Schneider v. Phelps, 359 N.E.2d 1361 (N.Y. 1977) ................................................11

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Short On of New Castle, Inc. v. Dep't of Fin. Insts., 811 N.E.2d 819 (Ind. Ct. App. 2004) ...........................................................37

State ex rel. Cooper v. ACE Cash Express, Inc., Clearinghouse No. 53, No. 02-CVS-330 (N.C. Super. Ct. filed Jan. 14, 2002)........................... 29-30

State ex rel. Cooper v. NCCS Loans, Inc., 624 S.E.2d 371(N.C. Ct. App. 2005)...37 See, e.g., State ex rel. McGraw v. AeroAdvance Fin., Inc., et al.,

Civ. Action No. 07-MISC-364 (Cir. Ct. filed Sept. 5, 2007) .......................33 State ex rel. McGraw v. Cash Advance Network, Inc., et al.,

Civ. Action No. 06-MISC-437 (Cir. Ct. filed Sept. 5, 2007) .......................33 State ex rel. Salazar v. ACE Cash Express, Inc., Case No. 01CV3739

(Colo. Dist. Ct. consent decree entered May 6, 2002) ..................................29 State ex rel. Salazar v. The Cash Now Store, Inc., 31 P.3d 161 (Colo. 2001) ........22 State ex rel. Suthers v. Cash Advance, 205 P.3d 389 (Colo. Ct. App. 2008) .... 24-25 Upshaw v. Georgia Catalog Sales, Inc., 206 F.R.D. 694, (M.D. Ga. 2002) ...........36 Willis v. Buchman, 199 So. 886 (Ala. Ct. App.),

rev'd for mootness, 199 So. 892 (Ala. 1940) ...............................................36 State Statutes Colo. Rev. Stat. Ann. ? 5-3.1-108 (2)......................................................................15 Colo. Rev. Stat. Ann. ? 5-3.1-105..............................................................................5 Colo. Rev. Stat. Ann. ?? 5-3.1-101 to 123 ........................................................2, 4, 7 Ga. Code Ann. ? 16-17-1 et seq...............................................................................30

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Federal Regulations

Official Staff Commentary, ? 226.2(a)(14)-2, as published at 65 Fed. Reg. 17,129 (Mar. 31, 2000), 12 C.F.R. ? 226 (Supp. I, Cmt. 226.2(a)(14)-2) ....35

Other Authorities

Appendix 3: Rent-A-Bank Payday Lending, Testimony, CFA and USPIRG, Hearing on Regulatory Restructuring: Enhancing Consumer Financial Products Regulation, House Committee on Financial Services, June 24, 2009, available at \ _et_al_Regulatory_Restructuring_HFSC_6-24-09.pdf.................................31

Joe B. Birkhead, Collection Tactics of Illegal Lenders, 8 Law & Contemp. Probs. 78 (1941) ............................................................12

Richard R.W. Brooks, Credit Past Due, 106 Columbia L. Rev. 994 (2006) ..........18

David Burtzlaff, Payday Loan Industry Report, Stephens Inc. Investment Bankers, April 16, 2009, available at ................................................................18

Paul Chessin, Borrowing From Peter to Pay Paul: A Statistical Analysis of Colorado's Deferred Deposit Loan Act, 83 Denv. U. L. Rev. 387 (2005) .................................... 4-5, 13, 15, 16, 17, 19

Ctr. for Responsible Lending, Race Matters (2005), rr006-Race_Matters_Payday_in_NC-0305.pdf.............................................31

Consumer Fed'n of Am., Legal Status of Payday Loans, ..............................................6, 14

Jerilyn DeCoteau, The New Money Changers, Indian Country Today, %20on%20website/Predatory%20lending/decoteau%20 predatory%20lendingict.pdf (Apr. 28, 2008) ................................................11

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Lynn Drysdale & Kathleen E. Keest, The Two-Tiered Consumer Financial Services Marketplace: The Fringe Banking System and its Challenge to Current Thinking About the Role of Usury Laws in Today's Society, 51 S.C. L. Rev. 589 (2000).................... 5-6, 13, 17

Keith Ernst, John Farris & Uriah King, Ctr. for Responsible Lending, Quantifying the Economic Cost of Predatory Payday Lending (2004), -analysis/CRLpaydaylendingstudy121803.pdf ...............................................9

FDIC, Guidelines for Payday Lending (Mar. 1, 2005), available at

Jean Ann Fox & Anna Petrini, Consumer Fed'n of Am., Internet Payday Lending: How High-priced Lenders Use the Internet to Mire Borrowers in Debt and Evade State Consumer Protections 13 (2004), 113004.PDF ...................................................................................................20

Jean Ann Fox, Consumer Fed'n of Am., Unsafe and Unsound: Payday Lenders Hide Behind FDIC Bank Charters to Peddle Usury 2 (2004), pdlrentabankreport.pdf...............................................................................6, 14

George L. Gisler, Organization of Public Opinion for Effective Measures Against Loan Sharks, 8 Law & Contemp. Probs. 182 (1941) .......................13

In re Quik Payday, Inc., Assurance of Discontinuance (Dec. 22, 2005).................33

Uriah King & Leslie Parrish, Ctr. for Responsible Lending, Phantom Demand (2009), research-analysis/phantom-demand-final.pdf. .............................8, 10, 16, 18

Uriah King & Leslie Parrish, Ctr. for Responsible Lending, Springing the Debt Trap (2007), payday-lending/research-analysis/springing-the-debt-trap.pdf............. 8-9, 17

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