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Typo turns Oregon woman’s $300 loan into a $40,000 nightmare

“I got a letter saving I owed Rapid Cash $40,000,” Banks told Yahoo Finance. “The letter almost gave me a heart attack."

An Oregon woman’s $40,000 payday loan nightmare may soon be over. After two years, hundreds of dollars in legal fees, and an ongoing court battle, the lender, Wichita, Kan.-based Rapid Cash, claims it was all a misunderstanding.

The mix-up, they say, all came down to a rather unfortunate typo.

Stephanie Banks, 64, took out a $300 loan from Rapid Cash in the fall of 2013. At the time, Banks had retired early from her job as a bookkeeper in order to undergo chemotherapy treatments for breast cancer.

Without any income outside her monthly Social Security benefits and with medical bills stacking up, Banks found herself short on rent money. She drove to a Portland, Ore., Rapid Cash storefront and put up her car as collateral for a $300 title loan, just enough to pay her landlord. The loan came with a 153% interest rate, the legal maximum allowed by the state of Oregon.

Shortly after she took out the loan, Banks moved to file for Chapter 13 bankruptcy and most of her debts were discharged, including the title loan (or so she thought). Rapid Cash seemed to back off at that point. But nearly two years later, in August 2015, they came calling again. This time, they weren’t only asking for the original $300 to be repaid.

“I got a letter saying I owed Rapid Cash $40,000,” Banks told Yahoo Finance. “The letter almost gave me a heart attack. How could a $300 loan turn into $40,000?” Calls from the company’s debt collection department followed. “They said they would destroy my credit if I did not pay them immediately,” she said.

Banks contacted her bankruptcy attorney, who tried to dispute the claim in court. Once a debt has been discharged in bankruptcy, it’s illegal for the lender to continue to pursue collection, according to Banks’ current attorney, Michael Fuller, who is now handling her case pro bono.  

Debt collections are one of the largest sources of complaints filed with federal regulators.

The case could have been handled in less than two weeks in court, Fuller said. But Banks had unknowingly agreed to an arbitration clause when she took out the loan. These clauses, often buried in the legal fine print on everything from cellphone contracts to student loan applications, bar consumers from bringing complaints against companies in court. Federal regulators are working to ban some businesses, including payday lenders, from using forced arbitration clauses.

The court sided with Rapid Cash, sending the case into arbitration in late February. Fuller said Rapid Cash has offered as much as $5,000 to settle Banks’s case. But they turned the offer down. That sum would hardly cover Banks’s initial legal fees and she would have to pay taxes on the settlement.

“I’m still hopeful we can just settle the case, but she can’t end up with a big tax bill and her original attorney needs to be paid,” Fuller said.

Banks decided to go public with her story earlier this month, speaking out on behalf of payday loan borrowers through the American Association of Justice, a legal advocacy group. It wasn’t until she shared her story with the Oregonian that Rapid Cash came forward to acknowledge there had been a mistake.

The $40,000 debt never actually existed, the company confirmed.  It was all due to a misplaced decimal point that caused the true amount Banks owed — $403.17 — to appear instead as $40,317.

“We had a system glitch that day that caused some incorrect letters to be sent out,” Melissa Soper, spokesperson for Rapid Cash, told Yahoo Finance. The company contends that it sent out corrected letters immediately after it discovered the glitch. Banks and Fuller say she did not receive a corrected letter. “They never mentioned there was a decimal error before,” Fuller said.

Banks should never have been contacted by Rapid Cash after her debt was discharged in bankruptcy, Soper acknowledged, again pointing to an IT glitch. “It was a systems error that put her file back into active collections and a systems error that then generated an incorrect letter,” she said. Soper said the company has since contacted the borrowers to let them know about the errors.  

Debt collection mistakes aren’t uncommon, as old debts are often bought and resold several times if collection agencies are unable to recoup them. But they can wreak havoc on the credit health of the consumers they impact, as unpaid debts are reported to credit reporting agencies. Debt collection is one of the most common sources of complaints submitted to the Consumer Financial Protection Bureau. Of  the 23,870 complaints the agency received in April, nearly one-third were tied to debt collections. The CFPB recommends consumers request a debt verification letter from any collections agency seeking repayment of a debt they do not recognize.

How this new information will impact Banks’ case in arbitration is yet to be seen. Efforts to reach Rapid Cash’s attorneys were unsuccessful but Soper said they hope to reach “an amicable resolution.”

Banks is hopeful this will be the end of her ordeal, but she is still seeking monetary relief from the company. She still owes her original attorney hundreds of dollars in fees and will have to pay an additional $200 to cover the fee for arbitration.

“I just want the problem to go away,” Banks said. “All of this could have been eliminated if they just [admitted the error] earlier.”

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Mandi Woodruff is a reporter for Yahoo Finance and host of Brown Ambition, a weekly podcast about career and finance. Follow her on Tumblr or Facebook.