Phony online payday loans can grab your cash

Talk about a tricky, cash-grab deal to drain hundreds of dollars from the bank accounts of struggling consumers.

Just listen to how this one goes: A consumer goes online to look into a payday loan. Or maybe even got such a loan online in the past.

The lender buys that consumer's personal information through an outside data broker — and then quickly deposits $200 or $300 into the consumer's bank account without the consumer actually authorizing that loan, according to federal regulators.

It's not a gift. It's a gotcha. The online lender starts automatically taking out $60 or $90 every other week in "interest fees" indefinitely. Consumers allegedly lost tens of millions of dollars in unauthorized fees on unauthorized loans, according to regulators.

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 lending outfits. And regulators pledge to keep an eye on other such deals.

The Consumer Financial Protection Bureau filed a lawsuit that alleges that the Hydra Group uses information it bought from online lead generators to illegally deposit payday loans — and withdraw fees — from checking accounts without a consumer's consent. About $97.3 million in payday loans were made from January 2012 through March 2013. About $115.4 million was taken from consumer bank accounts.

In another case, the FTC alleges that Timothy Coppinger, Frampton (Ted) Rowland IIIand a group of companies they owned or operated used personal financial information bought from third-party lead generators or data brokers to make unauthorized payday loans and then access customer bank accounts without authorization.

The FTC complaint lists names of companies including CWB Services, Orion Services, Sand Point Capital, Anasazi Group, Mass Street Group and others.

Regulatory actions represent one side of a case. Phillip Greenfield, the attorney in Kansas City, Mo., representing Rowland, said his client's entities' involvement was limited to funding the loans approved by CWB Services and receiving the borrower's repayment of those loans. Rowland denies the FTC allegations, noting that the loan servicing issues in the case center on parties not affiliated with Rowland.

Patrick McInerney, the Kansas City attorney representing Coppinger, said Coppinger denies the allegations in the FTC's lawsuit and will defend against each of the claims raised.

At the FTC's request, a U.S. district court in Missouri has temporarily halted the online payday lending operation.

Michigan regulators report that consumers facing financial difficulties here have been targeted, too.

The state Department of Insurance and Financial Services said it has received two complaints regarding companies mentioned in the FTC action.

Catherine Kirby, director of the office for consumer services at the Michigan Department of Insurance and Financial Services, said consumers need to be extremely careful when applying for a loan online.

Some consumers do not realize that they're dealing with a lead generator that would be providing that information to various lenders.

When the lead generator sells your information to a lender, you might not be able to research the lender quick enough in some of these regulatory cases.

Consumers might have trouble closing their bank accounts to stop the fees from being withdrawn, or if they did close the accounts successfully, in many cases their information would be sold to third-party debt collectors, the CFPB stated.

Both regulators discussed non-existent or false loan disclosures relating to 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 payments reducing the principal balance.

A disclosure box gave a picture to make it look like a $300 loan would cost $390. But additional small print indicated that new finance charges would hit with every refinancing of the loan.

In reality, a $300 loan cost more than $1,000 in biweekly debits for some consumers.

Talk about one incredible way to grab cash right out of someone's paycheck come payday.

New rules to cap credit interest rates for troops

Defense Department officials have proposed sweeping new rules that would limit the amount of interest that could be charged to service members and their spouses on most forms of credit — including credit cards.

The new rules “would reduce predatory lending practices, significantly expand the protections provided to service members, close loopholes in current rules, and help to ensure military families receive the important consumer protections they deserve,” defense officials said Sept. 26.

The Military Lending Act of 2006 was designed to cap loan interest rates for service members at a 36 percent annual percentage rate, and Congress gave DoD broad authority to define the types of loans covered under the law, with the exception of real estate loans and purchase-money loans such as vehicle loans.

In its basic concept, the move was unprecedented on a national scale for any other segment of the population. But when DoD wrote up its regulations implementing the law in 2007, it limited the types of credit covered to payday loans, car title loans and refund anticipation loans — a decision that has been routinely criticized by consumer advocates in the years since.

The new proposed rules would expand the types of credit covered to include those that are subject to the Truth in Lending Act, except for loans secured by real estate or other property, such as a loan to purchase a vehicle. Certain fees must be included in calculating the annual percentage rate.

In apparent acknowledgment that the original rules were drawn too narrowly, DoD officials said the new rules would better align with the Truth in Lending Act to provide service members with more lasting protections. The “new approach would move away from the product-by-product approach that created opportunities to evade the purpose of the [Military Lending Act] and toward a comprehensive, no-gaps approach,” while still giving troops and families access to a wide variety of lending products, officials said.

“We’re very supportive of DoD’s efforts to promulgate new rules,” said Andrew Egeland, president of the Association of Military Banks of America.

Egeland said he has not closely reviewed the new proposal yet, but would not expect it to have an impact on banks that operate on military bases. “We all operate well within the parameters of the Military Lending Act and offer alternatives to predatory lenders,” he said.

Michael Archer, director of legal assistance for Marine Corps Installations East, said expanding the protections to include credit covered by the Truth in Lending Act “would close the loopholes” that advocates have been concerned about for years. He said a Navy Relief representative this week informed him of a service member with a loan with an interest rate of 81 percent, and also noted that a number of payday lenders have moved their operations online to target service members.

Advocates and the Consumer Financial Protection Bureau also praised the DoD effort. “As one of the agencies charged with enforcing the Military Lending Act, we have seen firsthand how lenders use loopholes in the rule to prey on members of the military, CFPB director Richard Cordray said. “This proposal would shut down the predatory lending to the military that has flourished through exploiting legal technicalities.”

Holly Petraeus, assistant director, CFPB’s Office of Servicemember Affairs, said lenders have continued to charge military families interest rates as high as 500 percent.

“Today’s proposed rules are clear and comprehensive and will protect against debt traps that undermine the financial security of service members and their families,” said Mike Calhoun, president of the Center for Responsible Lending, in a statement.

In April, DoD submitted a report to Congress after a comprehensive study on credit use of service members that concluded the department must clamp down more tightly on predatory lenders to force troops away from high-cost credit options.

“DoD is not likely to persuade service members through current financial literacy programs alone that using high-cost loans is not in their long-term best interest,” the report said.

Rogue payday debt collectors had Cleveland ties: Plain Dealing

CLEVELAND, Ohio -- Rogue debt collectors based in Cleveland and Atlanta were hit with a $11 million judgment for harassing people for payday loan debts they didn't owe or that the collections company didn't have the right to collect.

The defendants won't pay that amount because they can't, the Federal Trade Commission said, but they are banned from debt collection and debt sales. 

The FTC announced the settlements Tuesday. The FTC alleged in a suit filed last year that Pinnacle Payment Services and its partner companies harassed people with robocalls and threatened them with arrest or legal action if they didn't pay up.

Some victims had visited loan-finding websites to inquire about payday loans. The FTC said the calls scared some into paying money they didn't owe.

More than 3,000 people complained about Pinnacle, which is now in the hands of a court-appointed receiver.

The FTC said that the judgments reflect the amount victims lost to bullying calls.

Pinnacle's partners included Premium Express Processing and Credit Source Plus, which had offices in Georgia and Ohio.

Here's how the judgments broke down:

DeMarra J. Massey of Cleveland, who controlled Premium, was ordered to pay $1.6 million.

Nichole C. Anderson of East Cleveland, who served as a manager of Credit Source, and Angela J. Triplett of Euclid, a Credit Source officer, were, along with several other individuals and the corporate defendants, hit with a shared $9.4 million judgment.

Massey and others named in the suit are banned from debt collection or debt sales and were ordered to destroy any consumer information in their possession.

Last week, the FTC and Consumer Financial Protection Bureau took enforcement actions against rogue lenders who deducted payday loan payments from the accounts of people who hadn't agreed to take out loans. The agencies said those companies used bank account information that victims had supplied through payday-loan search sites.

Lesson for consumers: Stay away from online sites that offer payday loans. You can't know who'll wind up getting your information or what they'll do with it.