Payday Loans
State pension funds were indirectly invested through a private equity firm in ACE Cash Express, a company with locations across the country like this outlet in Albuquerque, which was charged last year with intimidating borrowers who took out payday loans. (Vik Jolly | AP file photo)
TRENTON -- The council that manages New Jersey's $71 billion public pension fund has sold its stake in a payday lender that consumer advocates said preys on low-income and minority customers through practices that are illegal here.
The advocates, including New Jersey Citizen Action and the NAACP New Jersey, pressured the State Investment Council to divest from a private equity fund that owns ACE Cash Express, a Texas-based operator of stores that provide check cashing services, short-term loans and prepaid debit cards.
"Payday lenders have business plans that are based on borrowers failing, and for this reason it's sound policy that payday lending is illegal in New Jersey, and I think you've sent a strong message that payday lending is still unwelcome in New Jersey," said Beverly Brown Ruggia of New Jersey Citizen Action told the council Wednesday.
Investment officials on Wednesday announced they've sold the investment for 97 percent of its March asset value, with about $23 million in proceeds. The pension fund received half of the purchase price price up front and will receive the balance after two years.
Christopher McDonough, director of the state Division of Investment, said the investment's total proceeds plus sale amount to $86 million, or more than 1.6 times the original $50 million commitment.
Advocates first called attention to the investment in May. And while officials agreed they wanted to end their association with the payday lender, they warned executing an exit strategy could take time.
"We did what we said we were going to do and we did it at an attractive price," said Tom Byrne, chairman of the investment council.
The state in 2005 made the investment of public pension funds in JLL Partners Fund V, which used the proceeds in 2006 to acquire ACE Cash Express. State officials said they were not involved in directing or approving the companies the fund invested in.
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 more than 1,000 percent, advocates warned.
The vast majority or customers will take out five or more loans per year and pay off loans with borrowed money, they've said.
In 2014, 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.
Brown Ruggia also urged the council to establish policies that would bar firms managing state funds from investing that money in any business illegal in New Jersey and seek greater disclosure of disciplinary records.
Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.