Jurisdiction fiction?

South Dakota can be lovely this time of year, but consumers struggling financially shouldn’t have to travel there to respond to actions filed against them in a tribal court that doesn’t have jurisdiction over their case. That’s what the FTC has alleged in its amended complaint against Payday Financial, LLC, a company that pitches its short-term, high-fee loans in TV ads and online.

According to the FTC, when people fall behind in their payments, Payday Financial unfairly and deceptively manipulates the legal system by filing suits against them in the Cheyenne River Sioux Tribal Court and trying to get a tribal court order to garnish their wages. But the FTC says that the tribal court doesn’t have jurisdiction over claims against people who don’t belong to the Cheyenne River Sioux Tribe and who don’t live on the reservation or elsewhere in South Dakota.

The FTC has charged that Payday Financial’s tribal court suits are unfair, and that its contract language about where the suits would be brought is deceptive.

In its original complaint, the FTC alleged that the defendants illegally tried to garnish employees’ wages without a court order. The FTC also alleged that they violated the FTC Act by:

• falsely telling employers they had legal authority to garnish an employee’s wages without first getting a court order;

• falsely telling employers they had given employees an opportunity to dispute the debt; and

• unfairly disclosing the existence and amount of consumers’ supposed debts to their employers and co-workers, without the consumers’ knowledge or consent.

The FTC has also charged the defendants with violations of the Credit Practices Rule by requiring people taking out payday loans to agree to have wages taken directly out of their paychecks if they default. The FTC says the defendants also violated the Electronic Funds Transfer Act and Regulation E by requiring authorization for recurring electronic payments from consumers’ bank accounts as a condition of getting the loans. The amended complaint asks for civil penalties for the alleged violations of the Credit Practices Rule.

The action is pending in federal court in South Dakota.