It’s no secret that payday lending companies charge high interest rates and a butt-load of fees for their small dollar, short-term loans. Payday lending companies break federal laws by not being upfront about the often highly inflated fees they charge. The FTC today jumped in to block two online payday lending companies from preying on consumers with the highest fine ever levied against a payday lender.

The FTC announced that AMG Services, Inc. and MNE Services, Inc. will pay $21 million and waive another $285 million in charges that were assessed but yet not collected in order to settle accusations they violated the law by charging consumers undisclosed and inflated fees.

According to the FTC complaint [PDF], the defendants violated the FTC Act by misrepresenting to consumers how much loans would cost them.

For example, the defendants’ contract stated that a $300 loan would cost $390 to repay, but the companies actually charged consumes $975 to repay the loan.

The FTC also accuses the companies of violating the Truth in Lending Act by failing to accurately disclose the annual percentage rate and other loan terms. The complaint claims the companies violated the Electronic Funds Transfer Act by making unauthorized debits from consumers’ bank account a condition of the loans.

In addition to the fine and waived fees, the settlement includes broad prohibitions barring the defendants from misrepresenting the terms of any loan product, including the loan’s payment schedule, the total amount the consumer will owe, the interest rate, annual percentage rates or finance charges, and any other material facts.

“The settlement requires these companies to turn over millions of dollars that they took from financially-distressed consumers, and waive hundreds of millions in other charges,” Jessica Rich, Director of the Bureau of Consumer Protection, said in a statement. “It should be self-evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more.”

The payday lending industry has come under increased scrutiny from federal regulators in recent years with report after report finding the loans have devastating effects on consumers’ finances.

For years, lawmakers have tossed around the idea of meaningful payday loan reform, from banning loans with annual percentage rates higher than 36% or looking to close loopholes that allow predatory lenders to claim tribal affiliation.

Last year, the Consumer Financial Protection Bureau released a report that found four-out-of-five payday loans are made to consumers already caught in the industry’s debt trap. 

Then in July, the CFPB ordered payday lender ACE Cash Express to pay $10 million for pushing borrowers into a loan cycle of debt.

Online Payday Lending Companies to Pay $21 Million to Settle Federal Trade Commission Charges that They Deceived Consumers Nationwide [FTC]

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