Several national companies that offer small loans at high interest rates have agreed to refund money to more than one thousand Vermont borrowers.
The agreement is the result of a lawsuit brought by the Vermont Attorney General against companies illegally offering what are called payday loans.
The loans are often used by individuals who are unable to secure a bank loan. That was the case with Greg and Rhonda Wood of Thetford. Four years ago a health problem forced Greg to stop working and his income dropped dramatically.
With a mortgage and other expenses, the Woods needed a loan. Rhonda Wood saw a television ad for Western Sky Financial and called the company. Within hours she was approved for a $2,600 loan and by the next day the money was in her checking account.
What Wood didn’t realize was that the fees and interest rate on the loan were sky high.
“Halfway through [paying off the loan] I was informed it cost me $7,850 in interest,” she explained. Wood paid the remainder of the loan right away to avoid paying more than $15,000 in interest over the life of the debt.
Wood appeared Wednesday at a news conference with Vermont Attorney General Bill Sorrell. According to Sorrell, the Woods aren't alone.
“Between five and eight thousand Vermonters have taken out loans in the average amount of $375, but they can easily go up to $2,500. The annual percentage rate is on average 300 percent. Every one of those loans is illegal,” Sorrell said.
Vermont is one of 15 states that restrict payday loans. With the exception of banks and credit unions, lenders are required to register with the state and there are limits on the interest they can charge.
Sorrell says it hasn’t stopped dozens of unlicensed national lenders from offering loans to Vermonters with annual interest rates as high as 900 percent. The loans are advertised on the Internet and on local television and radio.
Sorrell says settlements reached with three of the lenders will result in refunds for borrowers and stop the companies from issuing any more loans in Vermont.
A fourth settlement involves a payment processing company. Vermont is the only state with a law addressing the third party processing companies which represent many lenders.
The refunds will amount to more than $1 million. Sorrell says other lawsuits are pending.
Commissioner of Financial Regulation Susan Donegan encourages Vermonters to call her office if they suspect a loan they’re considering is illegal.
According to Donegan, “Many of these practices are underreported by consumers. People are embarrassed to call or they’re not quite sure if they’ve even had a problem.”
Western Sky Financial is one of the companies that have agreed to refund money to Vermont borrowers.
According to Sorrell, Rhonda and Greg Wood stand to receive thousands of dollars in overpaid interest and fees.
Sorrell says his office is also working with Vermont employers to help them extend small loans to employees so they can avoid using payday lending companies.
