A number of high profile US institutional investors, including Harvard’s endowment and the California Public Employees’ Retirement System, have links to offshore payday loans through a private equity investment, according to Bloomberg.
San Francisco-based Vector Capital’s fourth fund raised $1.2 billion in 2007. Five years later, half of the money was yet unspent, and the Harvard Management Company began pressuring Vector to deploy.
The private equity firm then bought into Cane Bay Partners VI, which runs a network of payday lending websites charging more than 600% interest. Cane Bay and the websites are based in the Caribbean and Central America, allowing them to skirt US consumer-protection laws governing the short-term loan industry.
A former Vector employee said the private equity shop did not inform its investors about the nature of Cane Bay’s business.
On it website, Vector bills itself as an investor in “technology companies that have at least $30 million in revenue, strong customer bases, and high gross profit margins.” Although the firm regularly publishes press releases about it acquisitions and IPOs, Vector never announced its investment in Cane Bay publicly.
However, COO David Baylor told the news outlet that “any implication that we have not provided complete and accurate information to our investors about one or more of our investments is false.”
Last year, a number of former pay loan users sued Cane Bay, along with TV host Montel Williams and Bank of America, for their involvement in the offshore loan business. The class action complaint alleged that these operations violated strict California law regulating the term length, allowable interest rates, and fees for payday loans.
“The conduct of the defendants will continue to harm the general public,” the suit stated, urging the court to block the websites’ operations. The case has yet to be resolved.
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