A Wake County court Monday ordered a check-cashing business to quit payday lending and stop taking consumers’ money to repay loans.

“Consumers should be able to get short-term loans at reasonable rates, but the rates that Kwik Kash charged its customers were shockingly high,” Attorney General Roy Cooper said in a press release. “Thanks to this ruling, consumers are no longer trapped by these unfair loans.”

“Kwik Kash charged interest rates far in excess of what the law permits,” Commissioner of Banks Joseph A. Smith, Jr. said. “We will not tolerate companies that flout North Carolina law.”

In the ruling, Wake County Superior Court Judge Abraham P. Jones barred Check Into Kwik Kash, Inc. and its director, Albert Thomas, Jr., of Washington, N.C. from the lending business. Under the judgment, Kwik Kash is prohibited from collecting either interest or principal on its loans. That means that consumers who took out loans from Kwik Kash are no longer responsible for making payments on those loans, according to the attorney general’s press release.

Cooper and Smith filed a lawsuit against Kwik Kash in January, alleging that the check-cashing operation was making loans to North Carolina consumers in violation of state lending and consumer protection laws. According to the complaint, a typical borrower received five loans in one day, each for $100. The loans came due over a period of six months, to be repaid one per month. Most consumers paid interest rates of 200 to 400 percent, although rates soared as high as 585 percent on some loans.

North Carolina’s Consumer Finance Act permits only a 36 percent interest rate on loans under $600. State law prohibits licensed check-cashing businesses, such as Kwik Kash, from making loans.

After a four-year experiment with payday lending, state legislators allowed state laws that permitted payday lending to expire Aug. 31, 2001. Cooper and Smith charge that Thomas continued to operate Kwik Kash as a payday lender despite sunset of the payday law.

In October 2001, examiners from the Office of the Commissioner of Banks told Kwik Kash to stop making payday loans. Thomas indicated at the time that he would stop lending once current customers had paid off their existing debts. Bank examiners said they found in 2001 and 2002 that Kwik Kash had continued lending, making more than 8,300 illegal payday loans worth $600,000 and collected interest in excess of $99,000 in less than a year’s time.

Richard Wagner is the editor of Carolina Journal.