Talk about a delicate deal to scavenge cash to drain hundreds of dollars from the bank accounts of troubled consumers.
Just listen to how it plays out: A consumer goes online to find a payday loan. Or maybe even got such a loan online in the past.
The lender purchases that consumer’s personal information through an external data broker, then quickly deposits $ 200 or $ 300 into the consumer’s bank account without the consumer actually authorizing that loan, according to federal regulators.
It is not a gift. It’s a trap. The online lender begins to automatically withdraw $ 60 or $ 90 every two weeks in “interest charges” indefinitely. Consumers have reportedly lost tens of millions of dollars in unauthorized charges on unauthorized loans, regulators say.
It’s a warning worth hearing, especially if you find yourself on the financial edge. The Federal Trade Commission and the Consumer Financial Protection Bureau took action this month regarding two different online payday loan outfits. And regulators are committed to keeping an eye out for more such deals.
The Consumer Financial Protection Bureau has filed a complaint alleging that the Hydra Group is using information it purchased from online lead generators to illegally file payday loans – and withdraw fees – from checking accounts without consumer consent. . Approximately $ 97.3 million in payday loans were made from January 2012 to March 2013. Approximately $ 115.4 million was withdrawn from consumers’ bank accounts.
In another case, the FTC alleges that Timothy Coppinger, Frampton (Ted) Rowland III, and a group of companies they owned or operated used personal financial information purchased from third-party lead generators or data brokers to perform unauthorized payday loans and then access customers’ bank accounts. without authorization.
The FTC complaint lists the names of companies, including CWB Services, Orion Services, Sand Point Capital, Anasazi Group, Mass Street Group and others.
Regulatory actions are one side of a deal. Phillip Greenfield, the Kansas City, Missouri attorney representing Rowland, said his client’s entities were only involved in funding loans approved by CWB Services and repaying those loans by the borrower. Rowland denies the FTC’s allegations, noting that the loan service issues in the case involve parties not affiliated with Rowland.
Patrick McInerney, the Kansas City attorney representing Coppinger, said Coppinger denies the allegations of the FTC lawsuit and will defend himself against each of the claims raised.
At the request of the FTC, a U.S. district court in Missouri has temporarily suspended the online payday loan operation.
Michigan regulators report that consumers facing financial difficulties here have also been targeted.
The State Department of Insurance and Financial Services said it received two complaints about companies mentioned in the FTC action.
Catherine Kirby, director of the Michigan Department of Insurance and Financial Services Bureau of Consumer Services, said consumers should be extremely careful when applying for a loan online.
Some consumers do not realize that they are dealing with a lead generator providing this information to various lenders.
When the lead generator sells your information to a lender, you may not be able to find the lender quickly enough in some of these regulatory cases.
Consumers might find it difficult to close their bank accounts to prevent charges being levied, or if they were successful in closing the accounts, in many cases their information would be sold to third-party debt collectors, the CFPB said.
The two regulators discussed non-existent or false loan disclosures regarding finance charges, payment schedules and total number of payments.
For example, the FTC said, the defendants did not disclose that consumers would be required to pay indefinite finance charges without any payment reducing the principal balance.
A disclosure box gave an image to make it look like a $ 300 loan would cost $ 390. But other fine print indicated that new finance charges would be applied each time the loan was refinanced.
In fact, a $ 300 loan costs more than $ 1,000 in bi-weekly debits for some consumers.
Talk about an amazing way to get money straight from someone’s paycheck on payday.
Contact Susan Tompor at [email protected] Follow her on Twitter @tompor.