<p>RALEIGH, N.C. – The fight over payday lending by check cashers-which has drawn credit unions, banks and consumer groups into the so-called "rent-a-bank" fray over the last three years-appears headed to a federal court here. Up to now, the battle has been waged in state legislatures and a handful of courts, but a January 14 suit for injunctive relief by North Carolina Attorney General Roy Cooper and a countersuit in U.S. District Court may be setting new legal precedents, according to industry sources. The North Carolina suits center on payday loans offered by Ace Cash Express, of Irving, Texas, the nation's largest check cashing chain and the target of litigation in other states. Ace with 16 North Carolina outlets claims it is offering loans under federal rules through the California-based Goleta National Bank and is therefore exempt from state lending laws. In seeking to bar the practice in state Superior Court here, North Carolina Attorney General Roy Cooper joined by the State Commissioner of Banks Hal Lingerfelt accused Ace of charging exorbitantly high rates for loans in violation of state usury and asks the state court to shut down the Ace loan operation. In its complaint, Cooper charges Ace with illegally "claiming a legal loophole" by affiliating with a national bank to circumvent state law. In a news release, the attorney general noted that North Carolina did conduct "a four year experiment with payday lending" but that test expired August 31 when the legislature failed to renew a sunset enabling law. Since then, "some payday lenders across the state have closed their doors," but others like Ace linked up with Goleta in California and have continued to make loans even though "our current laws prohibit them." The end result is that North Carolina consumers are being "overcharged." Consumers, said Cooper, "need to be able to get a small loan at a fair price, but these loans are not only unfair, they're illegal," said Cooper. The AG complained that Ace charges customers $17 per $100 borrowed for two-week loans of $100-$500 and then two week extensions of the loan cost another $17 per $100 plus 5% of the principal. "These rates are even higher than those permitted by the now expired state law," said Cooper. Meanwhile, Ace counters in its federal suit that it acts to "assist" Goleta in "promoting, originating and servicing" the loans. The suit states that the bank makes full disclosure of its lending practices under Truth in Lending laws, and it warns North Carolina customers that the loans are designed for short term funding and "are not intended to serve as a long term financial solution to their needs." Ace asked the federal court to bar the attorney general and the state commissioner "from enforcing North Carolina law" against Ace or Goleta. No hearings have been set on either the Cooper complaint in state court or the Ace countersuit. The federal suit has been assigned to U.S. District Judge James Fox. The North Carolina Credit Union Network said it supports the AG suit but is not a party to the complaint. That has been the case in many of the suits across the country as state credit union leagues side with consumer groups and state attorney generals against payday lenders on claims consumers are being harmed by the exorbitant rates. Less than two months ago, Ace was sued in a Colorado state court by Attorney General Ken Salazar charging rollover loans by Ace are illegal and should be halted. Colleen Kelly, vice president of government affairs for CUNA, said the payday "phenomenon" has grown steadily since 1998. On the legislative front CUNA is currently "following 62 bills in 23 states." The first court challenge of payday lending began in 1999 in Michigan and has since spread to a number of states, noted Kelly. CUNA "remains concerned when any of our members" are charged "500 APRs," she said noting also that the national organization has encouraged CUs to seek out alternative products to steer members away from payday lenders. On that front, CUNA has issued publications on the topic and its State Issues Subcommittee has long had payday lending as a priority issue. Kelly said payday loan growth has mushroomed in a number of states "into a multi billion dollar industry," and there are now 12,000-14,000 outlets. -</p> <p>[email protected]</p>