Contact: Linda Sherry or Ken McEldowney, 415-777-9648
James C. Sturdevant, The Sturdevant Law Firm, 415-477-2410

Lawsuit charges that ACE violated California's check cashing laws

Download the complaint as a PDF file.

May 22, 2003 - San Francisco, CA - Consumer Action today filed a lawsuit today in San Francisco Superior Court against ACE Cash Express Inc., alleging that ACE has been violating California’s check cashing laws by selling short-term loans at inflated and illegal interest rates to unsuspecting consumers. ACE is the largest owner, operator and franchiser of check-cashing stores in the United States, and owns or controls a network of more than 1,100 stores nationwide. Consumer Action is represented by The Sturdevant Law Firm and Sheldon V. Burman.

For many years, ACE has been targeting low- and moderate-income families with a check cashing service offered at its stores. In reality, this is the short-term loan of a small amount of money at a very high interest rate. ACE promotes these loans, known as "deferred-deposit" or "payday" loans, to cash-strapped individuals in need of a few hundred dollars.

"Companies like ACE prey on consumers who have no credit cards, and who cannot obtain a small loan from a bank on regular terms," said Linda Sherry of Consumer Action.

California has laws governing check cashing business which impose limits on what they can charge.

Sherry explained that "the law generously allows so-called ‘check cashing’ businesses to charge up to $15 per $100 borrowed for 14 days - a very significant profit. But Ace was charging $17 for each $100 borrowed, the equivalent of an annual percentage rate of 443.21%."

Re-payment of a payday loan typically tied to the borrower’s next paycheck. The borrower writes a personal check payable to ACE and receives cash, minus a hefty fee. Although ACE knows that the borrower does not have sufficient funds to cover the amount of the check, it agrees to hold the check until the borrower’s next paycheck, or some other date, before cashing it. At the end of the loan term (usually 14 days) if the borrower still does not have sufficient funds to cover the check, the loan can be rolled over for another short period if the borrower pays additional fees and interest on the original cash balance.

"Too often the borrower ends up in a vicious cycle, repeatedly rolling over the original loan to a point where the accumulated fees and interest have a devastating impact," said Sherry.

"For years, ACE has been selling payday loans in violation of California’s check-cashing laws," said Jim Sturdevant, lead counsel for Consumer Action. "Its predatory practice of targeting unsophisticated consumers and selling them loans which result in high consumer debt is an illegal and unfair business practice. ACE is not immune from California laws,"

One of the main factors responsible for the emergence of payday lenders is the deregulation of the banking industry. Banks are free to pursue larger, more profitable depositors and ignore the need for low-cost basic banking services. Many banks have stopped providing small loans and cashing checks presented by non-customers and have raised transaction and maintenance fees on existing small accounts.

Payday loans are marketed as a quick, easy way to obtain cash for those who lack the credit history to obtain a credit card or a traditional loan. To qualify for a payday loan, most borrowers do not need to have collateral. But if the signed check which the borrower gives the lender is not made good, or he does not pay the lender all that the lender demands, the lender can threaten to press criminal charges against him for writing a bad check.

Consumer Action’s lawsuit alleges that ACE has been violating California’s check cashing laws and California’s Unfair Business Practices Act. Consumer Action seeks a court order requiring ACE to return the monies it has taken illegally from borrowers and an injunction prohibiting ACE from committing such violations in the future.