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.
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