Operators Of Scammy Payday Lender Ordered To Pay $1.26 Billion

Image courtesy of eyetwist

Four years after federal regulators sued the operators behind what might have been the scammiest payday loan Consumerist had ever seen, a federal judge has ordered Scott Tucker and his businesses to pay $1.26 billion to the Federal Trade Commission to resolve allegations of running online payday lending operations that exploited more than 5 million consumers. 

The ruling, handed down from Nevada U.S. District Court Judge Gloria Navarro, found that Scott Tucker’s payday loan business — which operated under names like AMG Services — harmed consumers by using misleading loan terms and charged usurious interest rates.

Tucker “did not participate in an isolated, discrete incident of deceptive lending, but engaged in sustained and continuous conduct that perpetuated the deceptive lending since at least 2008,” the order [PDF] states.

The FTC first filed suit [PDF] against Tucker and his business partners in 2012 (amended in 2013), claiming that AMG Services, Inc., three other internet-based lending companies, seven related companies, and five individuals, violated federal law by deceiving consumers when providing and collecting on payday loans.

Tucker, AMG Services, Level 5, Black Creek, and Broadmoor — collectively known as “Corporate Lending Defendants” — were the only parties to the case not to settle with the FTC previously.

Regulators accused the company of providing poorly crafted and automatic repayment schedules that caused borrowers to pay significantly more for loans.

For example, the FTC claimed that borrowers of $300 loans ultimately were on the hook for $975 based on the allegedly deceptive disclosures.

The FTC claimed that the operation told borrowers seeking loans that they would be charged the amount borrowed plus a one-time finance fee.

However, regulators found that the companies made withdrawals from borrowers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan.

Additionally, when it came to collecting on debts, the FTC accused AMG Services, Tucker, and other parties of falsely threatening that borrowers could be arrested, prosecuted, or imprisoned for failing to pay and that the defendants would sue them if they did not pay.

At the time the complaint was filed against the operation it had received more than 7,500 complaints to law enforcement authorities. In one case, a borrower recalled taking out a $500 loans that would supposedly cost $650 to repay. However, when it came time to repay the debt, the man says he was charged $1,925.

AMG tried to block the FTC suit in 2012 by claiming tribal affiliation. But 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.

Tucker then argued in court filings that his companies extended loans on terms that reflected the industry standard for short-term credit and that he was unaware his company was violating federal law.

Judge Navarro, however, disagreed with those claims.

According to the order filed on Friday, Tucker was “specifically aware that customers often did not understand the company’s process of renewals and paydowns” and received at least one email from an AMG manager proposing a new repayment model that would address the fact that “90% of issues we have with customers stem from them not understanding our process of renewals and paydowns.”

“Scott Tucker’s pervasive role and authority at AMG, which extended to almost every facet of the company’s business and operations, also creates a strong inference that [he] had the requisite knowledge that the Lending Defendants’ webpages were misleading,” Navarro wrote in the order.

Under Navarro’s order, Tucker, the estate of his brother, and the businesses owned by Tucker, must pay the FTC $1.266 billion. The order also requires Tucker’s wife to pay $19 million — the amount she acquired from the businesses.

Tucker, along with his businesses, are banned from the payday loan business, from making further misrepresentations in loan terms, or using deceptive collection tactics.

While Friday’s court order resolves the FTC’s complaint against Tucker and his businesses, the operator still faces criminal charges in New York, where he’s accused of running $2 billion payday loan enterprise that exploited 4.5 million consumers.

According to the DOJ indictment [PDF] filed in Feb. 2016, 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 alleged that from 1997 until 2013, Tucker’s business issued loans that carried average interest rates between 400% and 500% through “deceptive and misleading disclosures” about the loans’ costs.

The complaint also claims the starting in 2003 the company entered into agreements with several Native American Tribes in order to evade states trying to enforce laws prohibiting usurious loans. 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 his lawyer Timothy 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.

The Associated Press reports that Tucker has denied wrongdoing in the case, and a trial is scheduled for April 2017.

[via The Associated Press]