A collection company hired by payday loan firms was suspended by state regulators Monday because the loans were given by unlicensed companies who violated state usury laws.
The Maryland Collection Agency Licensing Board in the Office of the Commissioner of Financial Regulation suspended Smith Haynes & Watson LLC’s license over complaints about collection efforts for payday loans made online to Maryland residents.
Smith Haynes & Watson, based in Mission, Kan., was collecting debts on behalf of payday lenders including East Side Lenders LLC, of Newark, Del. East Side Lenders itself was slapped with a cease and desist order in June.
Travis Kelso, sales manager for Smith Hayes & Watson, declined to comment on the order and referred questions to the firm’s legal department.
Payday loans are generally low-balance, short-term loans in which customers borrow from a few hundred dollars to a $1,000 and pay high fees and interest rates for doing so. Payday loans are banned in Maryland, but they are still readily available online.
According to the complaints received by the state, consumers had applied for these loans online and were receiving collection calls from Smith Hayes & Watson to repay the loans that had an annual interest rate of 782 percent.
In one case, according to the agency, a customer borrowed $300 from East Side Lenders with the agreement to repay the full amount plus a $90 finance charge within two weeks. According to the state, this amounts to a 995 percent annual interest rate.
The agreement allowed for the loan to be renewed up to four times with a $90 finance charge tacked on at each renewal.
Regulators say this was a violation of Maryland’s usury laws and as such the loans were “illegal and unenforceable.” Since the loans are illegal and unenforceable, they cannot be collected.
According to investigators, Smith Haynes & Watson was notified multiple times that it could not collect on the debts. However, Smith Haynes & Watson continued its collection efforts on behalf of East Side Lenders and other, similar, online payday lenders.
“The company disregarded the Commissioner’s warnings and proceeded to bring collection actions against Maryland consumers for unlicensed loans at usurious rates,” said acting Deputy Commissioner of Financial Regulation Anne Balcer Norton in a statement. “In some cases, the undisclosed annual interest rates on the given loans exceeded 600 percent.”
The suspension is immediate, but the company can request a hearing within 15 days to contest the suspension. As part of the suspension, state regulators are also requiring the firm to turn over all information regarding its collection activity in Maryland.
After reviewing the information the agency can permanently revoke the firm’s collection license, impose fines and penalties and even require Smith Hayes & Watson to pay restitution. The company has 15 days to contest the suspension and request a hearing.
The Smith Haynes & Watson action is the second action against a debt collector in three months. In August, the state revoked the license of defunct law firm Mann Bracken LLP, which was once one of the largest debt collectors in the country.