States have usury laws to limit illegal lending from loan sharks and organized crime. Some states’ laws limit interest rates on loans so much that payday lending and other predatory financial products are effectively banned. New York is one such state, and prosecutors there have filed charges against the operators of a “payday syndicate” that allegedly issued loans with illegally high, triple-digit interest rates.

The NY Times’ DealBook reports that a year-long investigation by the state resulted in charges being brought against Carey Vaughn Brown, a former Tennessee used car salesman, and several of his counterparts, who are accused of violating usury limits and conspiracy for what prosecutors call orchestrating a “systematic and pervasive scheme.”

According to the indictment, Brown, along with Ronald Beaver, chief operating officer for several companies within the syndicate, and Joanna Temple, who provided legal advice, “carefully crafted their corporate entities to obscure ownership and secure increasing profits.”

Investigators say the scheme began when borrowers applied for loans on websites like MyCashNow.com. From there, borrowers’ information was passed to a loan origination company, also owned by Brown. Next the information was sent to a company that collected payments from borrowers, also owned by Brown.

With the creation of each business, Brown and his counterparts distanced themselves from the actual lending, making it difficult for investigators to track down the operators.

Prosecutors say the defendants purposefully incorporated their online payday lending arm, MyCashNow.com, in the West Indies in an attempt to put the company beyond the reach of U.S. regulators and authorities. Other companies owned by the defendant were incorporated in states with little to no payday regulations or lax record-keeping requirements.

DealBook reports that the syndicate illustrates the lengths to which companies will go to bypass usury laws, such as those put in place in New York and 14 other states.

While New York law caps interest rates on loans at 25%, the companies owned by Brown allegedly made loans with rates between 350% and 640%, prosecutors say.

Prosecutors claim that the syndicate organizers would attempt to stay below regulators’ grasp by discontinuing collections from New York residents.

Although investigators don’t yet know how many loans, or what amount, were made to New Yorkers, one company owned by Brown did report receiving $50 million in proceeds from loans made to New York residents in 2012.

At an arraignment on Monday, Brown’s lawyer said his client “acted in good faith and looks forward to showing his innocence.”

In recent years, New York has cracked down on payday lenders that try to skirt state laws by operation online or by claiming tribal affiliation.

Also last year, New York attorney general, Eric Schneiderman, sued Western Sky for issuing short-term loans with APRs of nearly 355%. Several months later, the company announced it would stop funding loans.

Last November, New York State sent cease and desist orders to dozens of online payday lenders operating on reservations to make them stop pursuing residents through advertisements in the state.

New York Prosecutors Charge Payday Loan Firms With Usury [The New York Times DealBook]

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