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The FTC File Suit To Crack Down on Abuses by Internet Payday Lenders

posted by Nathalie Martin

I recently presented a paper at the University of San Francisco School of Law, after which Professor Jesse Markham sent me a link about the FTC’s power to regulate payday loans.  I have been a bit fixated on what the CFPB what might be able to do to regulate these products, particularly the entirely unregulated wolrd of internet payday loans (see my brief musings on that topic in the Harvard Business Law Journal), but I had no idea this had also caught the attention of the FTC.

A recent post on the FTC’s web page describes a District Court case brought by the FTC against Payday Financial, LLC, doing business as Lakota Cash and Big Sky Cash, who allegedly send documents to their borrowers’ employers that mimic a garnishment by the Federal government,

 same forms, same exact look.  Federal agencies can garnish without a court order, so the idea is to look like one of those.  The FTC alleges that these lenders illegally revealed consumers’ unproven debts to their employers and deprived consumers of their right to dispute the debts or make payment arrangements.  The complaint further alleges that lenders:
•  misrepresented to employers that the defendants are legally authorized to garnish an employee’s wages, without first obtaining a court order;
• falsely represented to employers that the defendants have notified consumers about the pending garnishment and have given them an opportunity to dispute the debt; 
• unfairly disclosed the existence and the amounts of consumers’ supposed debts to employers and co-workers without the consumers’ knowledge or consent;
• violated the FTC’s Credit Practices Rule by requiring consumers taking out payday loans to consent to have wages taken directly out of their paychecks in the event of a default; and
• violated the Electronic Funds Transfer Act and Regulation E by requiring authorization for electronic payments from their bank account as a condition of obtaining payday loans.
 The FTC files a complaint when it has “reason to believe” that the law has been or is being violated, and it when it appears to the FTC that a proceeding is in the public interest. Consumers who would like to get the FTC’s attention can file a complaint with the FTC at the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357).  The FTC’s website provides free information on a variety of consumer topics.   Lately, the FTC has been showing a lot of interest in payday loans, in addition to its primary predatory lending focus, predatory mortgages. 


My impression from experience as a consumer bankruptcy lawyer is that many on-line payday lenders are off-shore, and do not attempt to invoke the jurisdiction of U.S. courts; they limit their collection activities to bank account assignment and telephone bullying. I would be interested to hear the views of those with more expertise as to what effective power the FTC has in that situation. (Another block of on-line lenders are based in Native American jurisdictions, and the name "Lakota" suggests that perhaps that issue is addressed int he described suit.)

Evidently the only way to get a bureaucracy (here the FTC) to do its job is to create an overlapping bureaucracy (here, CFPB) whose existence calls into question the need to continue the funding of the first bureaucracy. Competition - what a concept!

I've been seeing quite a few of these internet payday loans in the last year. Among other things, some of them completely ignore the automatic stay and continue EFT's post petition. I've had the most luck telling the bank's to stop the withdrawals which, takes forever. On the upside, calling the banks lets me catch up on popular selections of hold music.

Sort of related, the payday loan place down the street from my office has rebranded itself as a micro lender. No word yet on whether the Nobel Committee has dropped in to see the operation.

Unbelievable and hilarious, David. Thank you for that extra info. Does anyone know if that FTC claim of violation of the Electronic Funds Transfer Act and Regulation E, by requiring authorization for electronic payments from their bank account as a condition of obtaining payday loans, is a true violation? If the future electronic payments out of the bank account are indeed designed to be periodic, rather than lump sum, these rules are violated and this could go a long way toward shutting down internet payday lenders. My post on the Minnesota case, about how you can't get out of these loans even if you want to, sure suggests that periodic payments are indeed contemplated. Thoughts?

Well I wish FTC could start a strong campaign against fake mortgage rescue fraudsters as well.

Thanks for the information here in your blog.thanks for the related things that i haven't known yet. thank you again.

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