Cash-N-A-Flash charged 300% interest on car title loans, says Va. AG

The Virginia attorney general's office sued Cash-N-A-Flash of Hampton, Va., saying it broke the state's consumer finance law by charging customers interest rates of 300% or more on auto title loans and giving no grace period to pay the loan back without a charge.

Auto title loans offer quick cash for a short time -- usually a month -- and typically at high interest rates. The loan amount is for 30% to 50% of the vehicle's value. If the owner can't repay on time, a fee can be paid to roll the debt over, says the nonprofit Americans for Fairness in Lending. If the loan isn't paid off or rolled over, the lender will take the car, sell it and keep the cash.

Virginia's AG alleges CNC Financial Services Inc., which does business as Cash-N-A-Flash, charged borrowers interest rates above the state's 12% annual interest cap since March 2005. Businesses can be exempt from the rule if they provide a 25-day payment grace period that allows a borrower to pay in full before a finance charge gets tacked on to the loan. But Cash-N-A-Flash doesn't qualify, says the state, because some of its loans were set up as "closed-end credit" -- interest, fees and principal paid in a lump sum at the end of the loan term -- with no grace period.