Last year, federal regulators released a report that found online payday lenders — despite their clean, professional websites — could be just as bad, if not worse, than their storefront counterparts. Today, the Consumer Financial Protection Bureau provided yet another example of how these companies can wreak havoc on consumers’ finances by skirting the law. 

The CFPB announced today that it had filed a lawsuit [PDF] against four California-based online lenders accusing them of making deceptive demands and illegally taking money from consumers’ accounts for debts they didn’t actually owe.

Unlike some lenders who have tried to collect debts from people when they belonged to someone else, the CFPB claims that Golden Valley Lending, Inc., Silver Cloud Financial, Inc., Mountain Summit Financial, Inc., and Majestic Lake Financial attempted to collect on payday loans that were invalid based on state laws.

According to the CFPB complaint, since at least 2012, Golden Valley Lending and Silver Cloud Financial have offered online loans of between $300 and $1,200 with annual interest rates ranging from 440% up to 950%. Mountain Summit Financial began offering similar loans in 2014, while Majestic Lake Financial began doing so in 2015.

A typical $800 loan from the lenders would eventually balloon to approximately $3,320 over the course of 10 months, according to the complaint.

However, the four lenders — which provided installment loans to consumers in all 50 states through their websites — could not legally collect on these debts because they were void under state laws governing interest rate caps or the licensing of lenders.

In fact, 17 states where the loans were made — including Arizona, Arkansas, Colorado, Connecticut, Illinois, Indiana, Kentucky, Massachusetts, Minnesota, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, and South Dakota — have laws in place related to licensing requirements and restricting the amount of interest that can be charged on loans.

An investigation by the CFPB found that not only did the loans in some states exceed usury laws, the lenders did not have proper licensing in other states. As a result, the CFPB claims that thousands of loans made by the company were void and could not be collected.

Despite this, the four lenders allegedly created the false impression that they had a legal right to collect payments and that consumers had a legal obligation to pay off the loans.

In order to collect funds from some of these consumers, the CFPB claims the four lenders made electronic withdrawals from consumers’ bank accounts or called or sent letters to consumers demanding payment for debts that were not owed.

In the case of electronic withdrawals, the CFPB claims that while the lenders told borrowers they could repay their debts by sending in a paper check, when a customer sent in a check the lender’s loan agreement allowed them to create an electronic fund transfer that allowed the company to debit money from accounts directly.

Additionally, the Bureau alleges that the lenders’ websites did not properly disclose the annual percentage rates for the loans.

For example, each of the lenders website included a “FAQ” section that answered “How much does the consumer loan cost.” The company stated that “Our service fee is $30 per $100 loaned. This fee is charged every two weeks on your due dates, based upon the principal amount outstanding.”

Instead of providing the APR, the sites simply stated in fine print, “Complete disclosure of APR, fees, and payment terms are set forth in the loan agreement.”

In all, the CFPB claims the companies violated the Truth in Lending Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act.

With its lawsuit, the Bureau seeks monetary relief for consumers, civil penalties, and injunctive relief, including prohibiting the collection of the void loans.

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