FastBucks Files for Bankruptcy, Still Making High-Interest Loans
Known by many names – short-term loan, check-cashing, or payday loan businesses – companies that provide very-high-interest loans to consumers are not regulated in the same way as banks. But in New Mexico, one such company has found itself in hot water with the state.
Business As Usual
Three years ago, the New Mexico Attorney General’s office accused FastBucks of violating the state’s unfair business practice law by ripping people off with its high-interest loans, which can reach almost 400 percent.
In September, the judge in that case ordered FastBucks to stop offering high-cost installment loans in New Mexico, and ordered the company to pay more than $20 million in restitution to New Mexico consumers.
But instead of paying up, in December FastBucks declared bankruptcy in Dallas, Tex., where the company is based. Now the New Mexico AG is hopping mad, accusing it of pulling a fast one on New Mexico consumers.
“FastBucks is trying to weasel out of paying New Mexico consumers more than $20 million in restitution after losing the lawsuit my office initiated,” says AG Gary King in a Jan. 28 press release.
In the meantime, FastBucks reportedly continues to offer its loans. The type of bankruptcy it has filed for allows it to stay in business, according to King, but by doing so, it is violating the judge’s permanent injunction, which forbid the company from charging more than $15.50 per $100 borrowed on installment loans in New Mexico.
Difficult to Regulate
Known as “alternative financial service” providers, payday loan companies are not regulated in the same way as banks. As a result, in states where such businesses are allowed to operate, consumer advocates have struggled to fight them.
In Pennsylvania, for example, consumer advocates managed to delay a bill that would have raised interest rates on short-term loans to 368 percent. Cities in Texas have struggled to regulate payday loan companies, but have been met with serious industry resistance.
The New Mexico AG’s action is one of the more aggressive attempts to rein in the payday loan companies. They could find themselves facing similar trouble in other states. “Hopefully they are,” says Albuquerque consumer lawyer Richard Feferman. “That’s the whole idea behind this case.”
As to FastBucks’ alleged strategy to use bankruptcy to avoid paying up in the AG’s suit, Feferman says it probably won’t work. “The company can’t avoid its debts if it is not really insolvent,” he points out.
Feferman warns consumers to stay away from companies like FastBucks. Using them “just make[s] their already desperate situation worse,” he says. Consumers use their services but then can’t pay back the loans because of their astronomical interest rates.
If that happens, says Feferman, “they will be hounded endlessly, perhaps sued, and have their credit rating damaged badly.”