Feds Arrest Heads Of Two Massive Online Payday Loan Operations

Back in June 2014, Consumerist showed readers what might have been the scammiest payday loan we’d ever seen. Today, federal authorities arrested the man behind the company, AMG Services — along with his lawyer and another, unrelated, payday lender — for allegedly running online payday lending operations that exploited more than 5 million consumers. 

The U.S. Attorney’s Office for the Southern District of New York announced the arrests today of Scott Tucker, the man behind AMG Services, and his lawyer Timothy Muir for illegal actions related to operating a $2 billion payday lending enterprise that “systematically evaded state laws.”

According to the DOJ indictment [PDF], the online payday loan operation — which did business as Ameriloan, Cash Advance, One Click Cash, Preferred Cash Loans, United Cash Loans, US FastCash, 500 FastCash, Advantage Cash Services, and Star Cash Processing — charged illegal interest rates as high as 700% and collected hundreds of millions of dollars in undisclosed fees from consumers, including those in states with laws that bar interest rates in excess of 36%.

The indictment alleges that from 1997 until 2013, Tucker’s business issued loans to more than 4.5 million people. On average the loans carried interest rates between 400% and 500% through “deceptive and misleading disclosures” about the loans’ costs.

The company’s disclosure, as required by the Truth in Lending Act (TILA), allegedly materially understated the amount a loan would cost, including the total of payments that would be taken from the borrower’s bank account.

In one example, the disclosure box for a customer who borrowed $500, showed they would only have a finance charge of $150, for a total payment of $650. In reality, the finance charge was $1,425, for a total payment of $1,925 by the borrower.

Additionally, the indictment claims that Muir created sham associations with Native American tribes, the DOJ announcement states, claiming that the enterprise used these filings as a shield against state enforcement actions.

According to the DOJ, starting in 2003, Tucker and Muir entered into agreements with several Native American tribes, including the Miami Tribe of Oklahoma.

The purpose of the agreements was to entice the tribes to claim they owned and operated parts of the payday lending enterprise, so that when states sought to enforce laws prohibiting the loans, the businesses could claim to be protected by sovereign immunity.

In return for the claiming part ownership of the company, the tribes were compensated with a potion of the revenues from the business.

Tucker and Muir were charged with violating the Racketeer Influenced and Corrupt Organizations (RICO) Act including three counts of conspiring to collect unlawful debts and three counts of collecting unlawful debts; as well as violating the Truth in Lending Act.

AMG has been in a legal battle with the FTC for several years, when it tried to block a 2012 lawsuit filed by the regulators by claiming tribal affiliation.

In March 2014, the court shot down that notion, ruling that lenders can not shield themselves from U.S. law merely by operating from a base on tribal lands.

In a separate action on Wednesday, the Department of Justice U.S. Attorney’s Office for the Southern District of New York announced criminal charges against payday lender Richard Moseley for violations of TILA and RICO.

According to the indictment [PDF], Moseley, who ran a $161 million internet payday loan operation called Hydra Lenders, allegedly made predatory loans to more than 620,000 borrowers over more than a decade.

Between 2004 and September 2014, Moseley’s businesses issued and serviced small, short-term, unsecured loans — with interest rates as high as 700% — via the internet.

The company allegedly targeted consumers with deceptive and misleading disclosures and contracts.

and extended loans to consumers with interest rates as high as 700% using deceptive illegally high interest

“Hydra Lenders’ loan agreements materially understated the amount the payday loan would cost, the annual percentage rate of the loan, and the total of payments that would be taken from the borrower’s bank account,” the DOJ states.

For example, the loan agreement stated that the borrower would pay $30 in interest for $100 borrowed. In reality, the repayment schedule was structured so that Hydra could “automatically withdrew the entire interest payment due on the loan, but left the principal balance untouched so that, on the borrower’s next payday, the Hydra Lenders could again automatically withdraw an amount equaling the entire interest payment due (and already paid) on the loan.”

Moseley was charged with wire fraud, RICO violations and Truth in Lending Act violations.

In September 2014, the Federal Trade Commission filed suit against Hydra’s 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 complaint [PDF], 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 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.

[via Reuters]