Court Shuts Down Payday Lenders Who Made Millions Off “Loans” Borrowers Didn’t Ask For

Whether you think that payday loans are a necessary financial offering for people with bad credit to get low-value, short-term loans or a predatory product that only results in more debt for the nation’s poorest consumers, you’d agree that no loans should be doled out without the borrower’s approval. But one network is accused of putting unauthorized payday loans in consumers’ bank accounts so it can eventually siphon off even more money.

Earlier this month, the Federal Trade Commission sued [PDF] 19 different but connected companies and their two principals, alleging that they made millions of dollars off of consumers who found themselves trapped in payday loans they did not authorize.

According to the FTC, the defendants issued a total of $28 million in payday loans during an 11-month period in 2012 and 2013. Thing is, these loans were allegedly not authorized by the borrowers.

The scheme went like this, claims the FTC:

Consumers looking for payday loans would provide their information, including bank account numbers, to third-party lead generators for payday lenders. The defendants and their companies then purchased this information and, without approval from the borrower, used it to deposit money — typically between $200 to $300 — in a borrower’s account.

Once the unauthorized “loan” was deposited, the defendants would then allegedly withdraw recurring bi-weekly “finance charges” of up to $90. Of course, none of these payments actually went toward paying down the principal of the loan, according to the FTC.

According to the complaint, the defendants then contacted the unwitting borrowers to let them know that, in spite of evidence to the contrary, they were obligated to repay the “loan” they never requested. The FTC says the defendants also misrepresented the true costs of these not-really-loans.

The companies allegedly provided fake documents like loan applications and electronic transfer authorizations to bolster their claims that borrowers had actually authorized the loans.

Victims who tried to get out of this trap by closing their affected bank accounts, often found that their bogus debt had been sold to a collections agency, resulting in more harassment, the FTC contends.

The scheme raked in $46.5 million from “borrowers'” bank accounts, the FTC alleges.

Shortly after the complaint was filed, a U.S. district court in Missouri agreed to impose a temporary restraining order that appoints a receiver to take over the operation. The court order also gives the FTC and the receiver immediate access to the companies’ premises and documents, and freezes their assets.

“These defendants bought consumers’ personal information, made unauthorized payday loans, and then helped themselves to consumers’ bank accounts without their authorization,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “This egregious misuse of consumers’ financial information has caused significant injury, especially for consumers already struggling to make ends meet. The Federal Trade Commission will continue to use every enforcement tool to stop these unlawful and harmful practices.”

The defendants included in the complaint and the restraining order are: CWB Services, LLC; Orion Services, LLC; Sand Point Capital, LLC; Sandpoint, LLC; Basseterre Capital, LLC; Namakan Capital, LLC; Vandelier Group, LLC; St. Armands Group, LLC; Anasazi Group, LLC; Anasazi Services, LLC; Longboat Group, LLC, also doing business as (d/b/a) Cutter Group; Oread Group, LLC, also d/b/a Mass Street Group; and these companies’ two principals, Timothy A. Coppinger and the amazingly named Frampton T. Rowland, III.

Meanwhile, the Consumer Financial Protection Bureau has filed a lawsuit [PDF] against a separate network for running a similar predatory scheme that bilked $115.4 million from consumers.

The CFPB charges Hydra Group of running an illegal cash-grab scam by purchasing online lead generators to access consumers’ checking accounts to illegally deposit payday loans and withdraw fees without consumers’ consent.

The group then allegedly used uses falsified loan documents to claim that the consumers had agreed to the phony online payday loans.

The Bureau alleges that the Hydra Group puts money into consumers’ accounts without authorization. After depositing the payday loan, typically $200 or $300, it then withdraws a $60 to $90 “finance charge” from the account every two weeks indefinitely.

According to the Bureau’s complaint, some consumers have had to get stop-payment orders or close their bank accounts to put an end to these bi-weekly debits. In some cases, consumers have been bilked out of thousands of dollars in finance charges.

At the request of the CFPB, a U.S. District Court Judge temporarily ordered a halt to the operation and frozen its assets. The lawsuit also seeks to return the ill-gotten gains to consumers and levy a fine on the company.

The CFPB lawsuit names Richard F. Moseley, Sr., Richard F. Moseley, Jr., and Christopher J. Randazzo, who control the Hydra Group. The individuals allegedly ran the business through a maze of corporate entities created to evade regulatory oversight.