An Overland Park-based online payday loan deal, accused of deceiving borrowers by charging inflated fees, has agreed to pay federal regulators $ 21 million, the largest such settlement ever.
The bulk of the record payment will be returned to borrowers as a repayment. AMG Services Inc. of Overland Park and its partner company MNE Services of Miami, Oklahoma, will also write off $ 285 million in unpaid fines and loans still owed by customers, according to the settlement announced Friday by the Federal Trade Commission.
“The regulations require these companies to hand over millions of dollars they took from financially distressed consumers and waive hundreds of millions of other fees,” said Jessica Rich, director of the Consumer Protection Bureau of the FTC, in a statement.
“It should be obvious,” Rich said, “that payday lenders cannot describe their loans as having a certain cost and then back out and charge consumers a lot more.”
Unexpected fees and higher interest rates than advertised often left customers with debt that more than tripled the amounts they originally borrowed, the FTC said in court documents.
The settlement does not include any admission of guilt by the companies. Efforts to reach a lawyer for the company on Friday evening were unsuccessful.
In legal cases, AMG had argued that its affiliation with Native American tribes should protect the company from legal action.
He said the sovereign status of the tribes meant they were not subject to state or federal laws. A federal magistrate disagreed, ruling in 2013 that lenders must obey federal consumer protection laws, even if they are affiliated with tribes. A U.S. District Court judge upheld the ruling last year.
AMG claimed to be from the Miami and Modoc tribes of Oklahoma and the Santee Sioux of Nebraska. But the tribes would have received only 1 to 2% of the income from each loan.
The real beneficiary was believed to have been racing driver Scott Tucker, who used $ 40 million raised from borrowers to sponsor his racing team, according to a 2012 complaint filed by the FTC. Tucker has not resolved the charges against him by the FTC. His case is pending before a federal judge in Nevada.
Tucker’s lawyers have previously said the tribes’ business practices are “fully in accordance with federal law” and that they will challenge the claims.
A growing number of payday lenders have migrated from storefronts to the Internet in recent years in an attempt to circumvent state laws designed to curb predatory lending. Some companies are exploiting ties with tribes to avoid federal regulation, consumer advocates say.
Friday’s record-breaking payday loan settlement is significant because it shows tribal immunity does not work as a business model for payday lenders, said Ed Mierzwinski, director of the consumer program for consumer advocacy group US PIRG.
“Online payday lenders have tremendous power to illegally access consumer bank accounts and charge excess fees,” Mierzwinski said. “Fortunately, the FTC and the courts have rejected claims for tribal immunity from the law of it.”
Law enforcement officials across the country received more than 7,500 consumer complaints about the companies in Friday’s settlement, according to the FTC.
The FTC said the two companies were both part of the same loan deal. The agency said AMG manages cash advance payday loans offered by MNE on websites using the trade names Ameriloan, United Cash Loans, US Fast Cash, Advantage Cash Services and Star Cash Processing.
The websites advertised one-time finance charges and promised that customers could get loans “even with bad credit, slow credit, or no credit.”
But the FTC says borrowers were misled about the actual annual percentage rate on loans and were unaware that they would be charged additional financing fees every time companies made withdrawals from their bank accounts.
Contracts with borrowers indicated that a $ 300 loan would cost $ 390 to repay, for example, when it really cost $ 975, according to the FTC.
The agency also alleges that the companies illegally made pre-authorized withdrawals from customers’ bank accounts as a condition of credit.
The Community Financial Services Association of America, a trade group in the payday lending industry, released a statement Friday that distanced the group from the two companies involved in the settlement and expressed support for the FTC’s actions.
“These unscrupulous practices are not representative of the entire payday lending industry or its online industry, and they damage the reputation of (the association’s) members who uphold the highest lending standards in the industry. sector, “the statement read. “More importantly, these bad actors create an even more confusing environment for consumers, making them more vulnerable to fraud and abuse.”
AMG previously reached a partial agreement with the FTC in 2013 over allegations the company unlawfully threatened borrowers with arrest and prosecution. This regulation prohibited AMG from using such tactics to collect debts.