First, a primer on payday loans from John Oliver (h/t @qz). Those short on time might want to skip to the last few minutes, for a cameo by Sarah Silverman.
Payday lenders, which charge notoriously high interest rates, are outlawed in some states, including New York. The Manhattan District Attorney’s office has charged that a group of companies broke that law by making high-interest payday loans over the Internet, according to the New York Times.
According to the indictment, posted by the Times, a Tennessee man created a dozen companies that formed what the DA’s office calls a “payday syndicate.” Each company had a specific function. A shell company, officially incorporated in the West Indies, was structured so the company — as the indictment alleges — “owned no assets, had no officers or employees, possessed no bank accounts, and occupied no office space.”
A lawyer, also charged, allegedly told the defendants, essentially: Don’t worry about it. You’re officially based in the West Indies, and the loans happen in cyberspace. How could you be breaking New York laws? The indictment calls this advice "false."
The DA’s office says the companies loaned out $50 million to New Yorkers just in 2012 and collected $15 million in interest, breaking New York’s interest cap of 25 percent a year. The indictment lists one instance where the companies charged an effective rate of 1290 percent on a loan.
The companies may have violated laws in other states as well. The indictment says they loaned out $500 million in 2012 nationwide. According to the Pew Charitable Trusts, 15 states have what Pew calls “restrictive” payday lending laws, and according to the National Council of State Legislatures, a few outlaw them altogether. However, Pew researchers also interviewed more than 33,000 people, and found that even in states where payday loans aren’t allowed, like Arizona, people still used them.