Payday dismay

Take the case of one person who borrowed money from a payday loan operation the FTC has taken to court for allegedly illegal practices.  According to the FTC, the consumer was told that a $500 loan would cost him $650 to repay.  But by slicing and dicing repayments in a way that generated undisclosed fees, the defendants allegedly tried to charge him $1,925 to pay off the $500 loan — and threatened him with arrest when he balked.

That consumer wasn’t the first to complain.  In a lawsuit filed by the FTC against multiple defendants — AMG Services, Inc., three other Internet-based lending companies, seven related outfits, and six individuals, including race car driver Scott Tucker — the agency says the defendants’ illegal payday lending practices have generated more than 7,500 complaints to law enforcement authorities.

Like some other payday lenders whose activities have been challenged by the FTC and state AGs, the defendants have claimed in state legal proceedings that they’re affiliated with Native American tribes, and therefore are immune from legal action. Not so fast, says the FTC, who has argued in court papers that claims of tribal affiliation don’t exempt payday lenders from complying with federal law.

What kinds of conduct is the FTC challenging? On their websites, the defendants say they’ll withdraw a single payment from the customer’s bank account when the loan is due.  In their loan contracts, they tell the borrower that the total payment for satisfying the loan is the sum of what he or she borrowed plus a stated finance charge.  But according to the FTC, that’s not what happens.  The FTC says that rather than withdrawing the scheduled payment on one specific date, the defendants typically put through withdrawals on multiple occasions, thereby assessing additional charges on customers who are already struggling financially.  The upshot?  In numerous cases, people had to pay much more than the “Total of Payments” the defendants claimed.

The FTC has alleged that in numerous instances, before extending credit to people, the defendants misstated the terms of the loans and failed to accurately disclose in writing certain required information, including the finance charge, the annual percentage rate, the payment schedule, and the total of payments.  That, says the agency, violates the FTC Act, the Truth in Lending Act, and Reg Z.

The FTC also alleges that in numerous instances, the defendants have conditioned the extension of credit on recurring pre-authorized electronic fund transfers, in violation of the Electric Fund Transfer Act, and Reg E.

What happens if people fall behind?  According to the FTC, the defendants falsely threaten to have customers sued, arrested, prosecuted, or imprisoned for not ponying up, in violation of federal law.

As for defendant Scott Tucker, the FTC has charged that he — along with his brother, co-defendant Blaine Tucker — has transferred more than $40 million collected from cash-strapped payday loan customers to Level 5 Motor Sports, a company Scott Tucker controls.  According to the FTC’s brief, the money was ostensibly transferred for “sponsorship” fees that benefit his racing operation.

The lawsuit is pending in federal court in Nevada.