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New Jersey must cut links to unscrupulous payday-loan company

State’s public pension fund has $50 million stake in high-interest lending firm that’s banned in NJ

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New Jersey maintains a statute that prohibits payday-lending companies from operating within the state. Despite this prohibition, a recent article published by Fortune.com revealed that New Jersey’s public pension fund has invested $50 million in a private equity fund that owns Ace Cash Express Inc., a company that is prohibited from conducting business in New Jersey.

It is unethical for the state to fund its pensions from the profits of an unscrupulous company that is prohibited from conducting business within the state. The Division of Investments should immediately divest from the private fund managed by JLL Partners and instead invest in companies that reflect the social and moral landscape of the state.

By virtue of the investment, the New Jersey State Investment Counsel is part owner of Ace, the second-largest payday lending company in the United States.

Lenders in New Jersey are prohibited from charging an APR in excess of 30 percent. According to Fortune, Ace’s loans typically carry an APR ranging from 65.35 percent to 1,409.36 percent, in addition to an origination fee.

The company operates in 36 states, choosing not to do business in states that impose interest rate caps below 50 percentage points. The high interest rate leads to profits for investors, but a cost for the public and consumers doing business with companies like ACE.

The Consumer Financial Protection Bureau (CFPB) investigated Ace’s lending practices. In July 2014, Ace entered into a consent order acknowledging that it had acted in violation of the Consumer Financial Protection Act of 2010.

According to the settlement, loans issued by Ace have a two-week repayment period and consumers are typically forced into a cycle of refinancing loans to avoid default.

Ace also acknowledged using inappropriate collection techniques including repeated calls to non-debtors demanding payments, calling third-party references and disclosing information about debtors, and encouraging its collectors to make illegal threats if debtors did not pay immediately.

Ace also admitted training its collectors to push borrowers into a debt spiral by convincing borrowers to refinance existing debt and pay new fees instead of paying off existing loans.

It is inappropriate for the state to own an equity share of a company that is prohibited from doing business in New Jersey and has acknowledged violating federal law. New Jersey’s return on investment of approximately 11 percent does not justify profiting from a company that the state views as morally irresponsible.



How N.J. pension money financed the purchase of a ‘predatory’ lender

By Ted Sherman | NJ Advance Media for NJ.com
on May 06, 2015 at 9:30 AM, updated May 06, 2015 at 11:09 AM

TRENTON — Consumer advocates are calling for the state to divest itself from a private equity firm that used $50 million in New Jersey pension fund dollars to acquire a lending company tied to illegal debt collection tactics.

At issue is the state’s stake in a partnership formed by JLL Partners of New York, which used the proceeds to help fund its 2006 acquisition of ACE Cash Express — a Texas-based operator of check cashing stores that used false threats, intimidation, and harassing calls to bully borrowers of so-called “payday” loans, according to the federal Consumer Financial Protection Bureau.

The investment, while indirect, was challenged by Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action, who wants the State Investment Council to get its money out of the partnership.

“We don’t want taxpayers dollars going to a predatory company that isn’t even allowed to do business in New Jersey,” she said.

Payday loans are barred in New Jersey under laws governing cashing of checks. A bill pending in the legislature would also classify such lending as a violation of the Consumer Fraud Act.

Last July, the CFPB took enforcement action against ACE Cash Express over its debt collection practices, citing its harassment and false threats of lawsuits or criminal prosecution to pressure overdue borrowers into taking out additional loans they could not afford.

Payday loans are often marketed to help people make it between paychecks, but are usually expensive, small-dollar loans that must be repaid in full in a short period of time, according to the CFPB. The agency noted a study it conducted last yearthat found four out of five payday loans were rolled over or renewed within 14 days, leading consumers to ultimately pay more in fees than the amount of money originally borrowed.

ACE agreed to provide $5 million in refunds and pay a $5 million penalty. But in the wake of the enforcement action, Salowe-Kaye questioned why New Jersey would put its pension funds into such a business.

“There’s a reason payday lending is illegal in New Jersey,” she said. “Payday lenders prey on desperate borrowers living paycheck to paycheck, keeping them trapped in a devastating debt cycle payday after payday.”

JLL Partners did not respond to calls or emails.

NO DIRECTION ON PORTFOLIO FUND INVESTMENTS

According to Joseph Perone, a spokesman for the Department of the Treasury, the state initially had not been aware that ACE Cash Express had been penalized, but said JLL Partners had informed the state the lending company had complied with the federal enforcement action.

Perone said the Division of Investment has invested as a limited partner in a number of private equity buyout funds such as JLL Partners.

“In these particular funds, the division neither directs nor approves the companies in which these funds invest,” explained Perone. “Absent a specific law prohibiting investment in a specific company or industry, we would not exclude a particular investment from consideration.”

Consumer rights attorney Adam Deutsch of Denbeaux & Denbeaux in Westwood, however, called the state irresponsible in not vetting the investment more thoroughly.

“I think there is a fundamental problem with the state investing in a company not allowed to do business in New Jersey,” he said. “And the reason they are not allowed to do business in New Jersey is that they charge exorbitant rates on short term loans that are damaging to the community.”

Deutsch said there are “plenty of legitimate businesses allowed to do business in New Jersey that provide similar, if not better, rates of return on their investment.”

Salowe-Kaye, meanwhile, said reforms are needed in the way New Jersey’s Pension Fund is managed. The state has been gradually increasing its stake in non-traditional investments, such as hedge funds and private equity funds. Officials have said the shift has paid off, with better investment returns for a fund that doles out $650 million to $700 million a month in pensions and benefits. But it has also led to increased fees.Last month, trustees of the Public Employees Retirement System vote to conduct a forensic audit after funds’ costs hit a new high last year.

Still, Salowe-Kaye said the JLL Partners investment raised questions about where those pension dollars were going.

“Investments in predatory payday lending companies, when their entire business model is illegal in New Jersey is just one example of irresponsible management of the pension fund,” she said.

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Adam Deutsch

Adam Deutsch

Senior Associate Attorney at Denbeaux and Denbeaux
ADAM DEUTSCH is a Senior Associate Attorney at Denbeaux & Denbeaux currently concentrating his practice on consumer rights litigation. More specifically, Mr. Deutsch represents consumer debtors in plaintiff suits seeking relief under federal statutes including the Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act, Truth in Lending Act, Fair Credit Reporting Act and state statutes such as the New Jersey Consumer Fraud Act.