PHILADELPHIA (CN) – Delaware-based CashPoint is a “rogue lending institution” that wrongfully claims “it brings Delaware law with it” when it sends agents into Pennsylvania to repossess cars, according to a federal complaint by a man who says CashPoint charged 360 percent interest on his $2,500 loan.
Consumer groups have for years decried the triple-digit interest rates charged by lenders for small, cash advances secured by vehicles.
Michael Laspina says the loan, secured on his Chrysler Sebring, would never have gone into default if the company had charged an interest rate that was legal in Pennsylvania.
The Keystone State caps the rate for such loans at 6 percent, and rates in excess of 25 percent can be considered a crime in Pennsylvania.
Its neighbor to the south, however, takes a more freewheeling approach.
As a federal judge noted in an opinion last month, “Delaware statutes specifically authorize lenders to charge borrowers … any agreed-upon interest rate.”
But Laspina says that, unfortunately for him, and “in willful defiance” of the 3rd Circuit and Pennsylvania Supreme Court, CashPoint’s president, defendant Michael Lester, decided that CashPoint would issue loans to Pennsylvanians “at rates of interest 60 times in excess of Pennsylvania’s usury law,” according to the suit.
The 3rd Circuit ruled in November 2009 that Pennsylvania law governed a case involving a 300.1 percent interest rate for an auto-secured loan made to a Pennsylvania woman.
That loan was provided by a Delaware lender located less than a mile from the Pennsylvania border.
When you cross the Pennsylvania-Delaware border on Interstate 95, predatory lending operations start popping up “all over the place,” Laspina’s attorney, Robert Salvin, told Courthouse News.
The lenders are “abusive,” he said. “I don’t even consider it lending.”
CashPoint may have “hundreds of thousands [of dollars] in automotive collateral on the streets of Pennsylvania,” yet “these people can enter Pennsylvania and snatch cars and not be subjected to regulations under Pennsylvania law,” Salvin added.
If you take out a loan with a company like CashPoint, you’ll be saddled with “a payment obligation that has no relationship to what you just borrowed,” he said.
Laspina’s minimum monthly payment on the $2,500 loan was $739.73, “and that was only for interest,” according to the suit.
Several months after receiving the cash advance, and after paying nearly $2,000 – none of which reduced the principal – Laspina fell behind on his payments and CashPoint agents moved in from Delaware to repossess his car.
Salvin says he has litigated dozens of similar cases involving auto-secured loans from predatory lenders in Delaware.
But a spokesperson for CashPoint told Courthouse News that “counsel for plaintiff has repeatedly failed in his efforts to compel the application of Pennsylvania law to CashPoint’s Delaware transactions.”
“The transaction at issue occurred in Delaware and is governed by Delaware law,” the spokesperson said. “CashPoint operates in Delaware, in strict compliance with Delaware’s laws and regulations.”
Laspina says his contract with CashPoint unfairly forces him to arbitrate all claims through the American Arbitration Association (AAA), an organization that gives consumer cases like Laspina’s “second-class treatment.”
“No matter how complicated the case, no matter how long the briefs, no matter how many cases, statutes and regulations to be analyzed, no matter how complicated the evidence, the arbitrator is mandated by the AAA to decide a consumer case in roughly two and a half hours or less,” according to the suit.
“How is that due process?” Salvin asked in the interview with Courthouse News.
“Perfunctory” would be an apt description of the arbitrators’ approach to such cases, he said, adding that the problem stems from the relatively meager compensation that arbitrators receive compared to the rate they can charge for nonarbitration legal services.
“The failure to provide full compensation to the arbitrators creates an unfair hurdle to a consumer claimant who bears the burden of proof” and “defeats the legislature’s intention that the consumer protection statutes at issue be vigorously enforced,” according to the suit.
Laspina is suing under the Truth in Lending Act, federal anti-racketeering law and Pennsylvania’s usury statute.
A study by the Consumer Federation of America surveyed 81 auto-secured loan providers in 11 states, and called on officials to enact protections against what it characterized as a ‘fast-growing form of high cost, high risk loans targeting cash strapped American consumers.”