The Star-Ledger

N.J. May Divest From Investment Tied To 'Predatory' Payday Lender

The Star-Ledger — Wednesday, May 27, 2015

By Samantha Marcus | NJ Advance Media for NJ.com

TRENTON — The New Jersey council overseeing public worker pension funds on Wednesday agreed to explore shedding its investments in a firm that owns a payday lender that consumer advocates accused of preying on low-income and minority customers.

Tom Byrne, chairman of the State Investment Council, warned that divesting wouldn't happen overnight and may even come at a loss, but he and other members were outspoken in their desire to get out.

New Jersey Citizen Action and the NAACP New Jersey raised concerns about the state's stake in a private equity fund managed by JLL Partners, which owns ACE Cash Express, a Texas-based operator of stores that provide check cashing services, short-term loans and prepaid debit cards.

In 2005, the state invested $50 million in public pension funds with JLL Partners, which then used the proceeds to acquire ACE Cash Express.

Byrne noted that the council didn't directly invest in the payday loan company or even approve the investment.

Payday lending is illegal in New Jersey, where interest rates are capped at 30 percent. Interest rates charged by "predatory" lenders can range from 65 percent to well over 1,000 percent, said Beverly Brown Ruggia of New Jersey Citizen Action.

Last year, ACE was fined $5 million by the Consumer Financial Protection Bureau after finding the company had used harassment and false legal threats to "pressure overdue borrowers into taking out additional loans they could not afford." The company was also forced to refund $5 million.

"This culture of coercion drained millions of dollars from cash-strapped consumers who had very few options to fight back," the bureau said in a July 2014 statement.

People who take on these short-term loans can become trapped in a cycle of debt as they repeatedly renew and default on loans, advocates warned.

The vast majority of customers will take out five or more loans per year and pay off loans with borrowed money, said Bruce Davis, economic development chairman of the New Jersey NAACP told the council.

"Predatory lending, which is rampant in our communities, hurts individuals and destroys neighborhoods," Davis said. "A public fund should have a social conscience."

Council members said Wednesday they would like to end its association with predatory lending and asked the head of the Division of Investments to find an exit strategy.

"Our primary responsibility is obviously to the beneficiaries of the fund," Byrne said. "We've got to go find a buyer if we're going to divest. That's not necessarily something that happens immediately."

The division has another $150 million investment with JLL Partners pending that is not tied to ACE, but the consumer groups urged the council to leverage those outstanding funds to pressure the firm.

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