The FTC File Suit To Crack Down on Abuses by Internet Payday Lenders


I recently presented a paper at the University of San Francisco School of Law, after which Professor Jesse Markham sent me a link about the FTC’s power to regulate payday loans.  I have been a bit fixated on what the CFPB what might be able to do to regulate these products, particularly the entirely unregulated wolrd of internet payday loans (see my brief musings on that topic in the Harvard Business Law Journal), but I had no idea this had also caught the attention of the FTC.

A recent post on the FTC’s web page describes a District Court case brought by the FTC against Payday Financial, LLC, doing business as Lakota Cash and Big Sky Cash, who allegedly send documents to their borrowers’ employers that mimic a garnishment by the Federal government,

 same forms, same exact look.  Federal agencies can garnish without a court order, so the idea is to look like one of those.  The FTC alleges that these lenders illegally revealed consumers’ unproven debts to their employers and deprived consumers of their right to dispute the debts or make payment arrangements.  The complaint further alleges that lenders:
•  misrepresented to employers that the defendants are legally authorized to garnish an employee’s wages, without first obtaining a court order;
• falsely represented to employers that the defendants have notified consumers about the pending garnishment and have given them an opportunity to dispute the debt; 
• unfairly disclosed the existence and the amounts of consumers’ supposed debts to employers and co-workers without the consumers’ knowledge or consent;
• violated the FTC’s Credit Practices Rule by requiring consumers taking out payday loans to consent to have wages taken directly out of their paychecks in the event of a default; and
• violated the Electronic Funds Transfer Act and Regulation E by requiring authorization for electronic payments from their bank account as a condition of obtaining payday loans.
 The FTC files a complaint when it has “reason to believe” that the law has been or is being violated, and it when it appears to the FTC that a proceeding is in the public interest. Consumers who would like to get the FTC’s attention can file a complaint with the FTC at the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357).  The FTC’s website provides free information on a variety of consumer topics.   Lately, the FTC has been showing a lot of interest in payday loans, in addition to its primary predatory lending focus, predatory mortgages.