RALEIGH, NC -- The Center for Responsible Lending endorsed a tough ruling today by the North Carolina Commissioner of Banks that the "rent-a-bank" arrangement payday lender Advance America used to operate in the state is illegal.

While Commissioner Joseph A. Smith Jr.'s ruling applies only to Advance America, the Center for Responsible Lending hopes four other payday lenders using the "rent-a-bank" tactic in the state will sever these relationships and leave the state. Mr. Smith ordered Advance America to stop doing business immediately in North Carolina.

Although North Carolina has banned payday lending since 2001, several out-of-state lenders like South Carolina-based Advance America have tried to dodge the ban by partnering with out-of-state banks that they claimed were not subject to North Carolina law.

Today's ruling is the culmination of four years of work by the state Attorney General's to stop illegal payday lending.

Payday lenders -- so called because they make borrowers sign a check postdated until the next payday -- often charge customers more than 400 percent for a loan, akin to legalized loan-sharking, says the center. Payday lenders threaten desperate borrowers with bankruptcy, foreclosure and financial ruin.

"We applaud Commissioner Smith for seeing through the smoke and mirrors payday lenders used to evade the law," said Mark Pearce, president of the center, a Durham, N.C.-based research and policy group that fights predatory lenders. "Payday lenders like Advance prey on people by getting them to roll their loans over again and again, racking up big fees each time.

"North Carolina families struggling to make ends meet should no longer be ensnared in the payday lending trap," Pearce said. "It is a shame, meanwhile, that North Carolina law enforcement has had to spend countless hours stamping out illegal payday lending, but we are glad they stood firm and protected North Carolinians from these illegal loans."

The Federal Deposit Insurance Corp., which regulates the banks that rent their charters to payday lenders in North Carolina and almost a dozen other states, cracked down this year, imposing strong guidelines to halt the payday loan debt trap. At least one major bank, County Bank in Rehobeth Beach, Del., has already left the payday lending business entirely since.

Advance America, meanwhile, stopped making new loans Sept. 15. Advance has more 117 offices in the state, making it by far the biggest payday lender in North Carolina.

Advance America raked in $10 million in profits last year in North Carolina, the Commissioner of Banks said, or about 10 percent of what it earns in the 34 states where it does business.

According to the company's earnings statement, overall profits in the first nine months of the year jumped from $42 to more than $46 million. It will cost the company about $3 million to close in North Carolina, it said.

Contact: Michael Flagg at 202-349-1862 or mike.flagg@responsiblelending.org