Commonwealth Shuts Down Alleged Illegal Web-based `Payday' Lending Scheme; Consumers Have 90 Days to Apply for Restitution

Commonwealth Shuts Down Alleged Illegal Web-based `Payday' Lending Scheme; Consumers Have 90 Days to Apply for Restitution

HARRISBURG, Pa., Sept. 28 /PRNewswire/ -- Attorney General Tom Corbett and Pennsylvania Banking Secretary Bill Schenck today announced that legal action has been taken against an alleged illegal Internet-based "payday" lending operation accused of charging consumers more than 600 percent annual interest on loans that were deceptively marketed as "rebates."

The business has shut down its web-based operation and will pay a total of $70,000 in fines and costs, plus refund consumers the amount of interest they paid above the maximum six percent permitted under state law. Consumers have until December 21, 2005 to file a complaint with the Office of Attorney General to obtain a refund.

Corbett said an "Assurance of Voluntary Compliance" agreement was reached with Ace Pays Inc., a Delaware Corporation formerly based in Levittown, Bucks County. The agreement, filed in Commonwealth Court, resolves alleged violations of Pennsylvania's Consumer Discount Company Act, Maximum Interest Rates Law and the Unfair Trade Practices and Consumer Protection Law.

Schenck said that the Department of Banking entered into a separate consent agreement with Ace Pays Inc. Schenck alleged that Ace Pays also failed to register as a payday lender or to obtain a license under the Credit Services Act.

Following a joint investigation, Corbett and Schenck said that Ace Pays advertised an "instant cash rebate," for as much as $1,000, when you joined its web-based membership program formerly located at www.acepays.com. The print advertisements ran in Southeastern Pennsylvania. The ads and online promotions potentially reached thousands of consumers statewide. The ads included statements such as "GET THE CASH YOU NEED NOW!" and receive "UP TO $1,000 INSTANTLY."

To obtain the so-called "rebate," consumers were encouraged to sign up for a one year membership program that was said to offer a variety of goods and services including discount prescriptions, legal assistance and health care insurance partnering, weather updates, online personals, email services and an "exclusive" catalog of items such as jewelry and designer clothing.

Consumers were given the option to join the program at various membership levels that ranged from $50 to $1,000 per year. For example, if a consumer signed up for the "Diamond" level, or highest membership tier, he or she would receive a $1,000 "instant rebate." Ace Pays would then charge that consumer a $20 daily rate that was typically deducted from their bank account every two weeks. Investigators said the amount charged was equivalent to an annual interest rate of 630 percent.

Investigators noted that consumers who signed up for smaller "rebates" were charged lower daily fees that again were well above the maximum six percent allowed under state law. On top of the exorbitant interest rates, consumers' contracts also included an additional early termination fee if they defaulted on the payments.

"It's clear to us that the web-based membership program was a ruse to engage in an illegal payday loan operation," Corbett said. "The so-called 'instant rebates' were nothing more than loans that had to be paid back, in some cases, at an annual interest rate of more than 600 percent. The actions taken by Secretary Schenck and my office not only bar this practice from continuing, but provide refunds to those who were charged the exorbitant and illegal interest rates."

"This is the way state government should work," Schenck said, "across branches and across party lines to protect Pennsylvania's vulnerable consumers. This was a great partnership with a great result for Pennsylvanians. Now we need to make sure that people know they're entitled to their money back."

Under the terms of both agreements, Ace Pays Inc. admits no wrongdoing and agrees to:

  -- Provide refunds to consumers who file a complaint with the Office of      Attorney General before December 21, 2005.  Consumers will be refunded      the difference between the interest rate charged and the six percent      interest rate allowed under state law.   -- Permanently shut down the web-based operation.   -- Pay $55,000 in civil penalties.   -- Pay $15,000 for the Commonwealth's investigation costs.  

Corbett and Schenck urge consumers who suspect that they are entitled to a refund to contact the Attorney General's Bureau of Consumer Protection at 1-800-441-2555 to obtain a complaint form. Consumers may also file a complaint electronically by visiting http://www.attorneygeneral.gov/.

Corbett and Schenck also remind consumers to be cautious with their financial information and to check out companies before conducting financial transactions. A searchable database of all Pennsylvania-licensed financial service providers is available at http://www.banking.state.pa.us/, or by calling 1-800-PA BANKS.

Corbett said, "I'm pleased with the outcome of our joint investigation which went a long way toward protecting thousands of Pennsylvanians who in our view were held hostage financially by an illegal business practice that intentionally targeted low income consumers with poor credit."

"The Pennsylvania Department of Banking is committed to safeguarding consumers from deceptive marketing and illegal lending," Schenck said. "We will continue to work aggressively, with the Attorney General and others, to put a stop to them."

CONTACT: Heather Tyler, Acting Press Secretary, Pennsylvania Department of Banking, +1-717-214-6046, or Barbara Petito, Deputy Press Secretary, Pennsylvania Office of Attorney General, +1-717-787-5211, petito@attorneygeneral.gov

Source: Pennsylvania Office of Attorney General

CONTACT: Heather Tyler, Acting Press Secretary, Pennsylvania Department
of Banking, +1-717-214-6046, or Cell: +1-717-439-5203, or Barbara Petito,
Deputy Press Secretary, Pennsylvania Office of Attorney General,
+1-717-787-5211, Home: +1-717-236-6264, or Cell: +1-717-215-1341,
petito@attorneygeneral.gov

Web site: http://www.attorneygeneral.gov/
http://www.banking.state.pa.us/