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The Federal Trade Commission has taken action against a payday lending operation that allegedly piled on undisclosed and inflated fees, and collected on loans illegally by threatening borrowers with arrest and lawsuits.  The FTC has asked a federal court to stop the allegedly illegal business tactics while the agency pursues its case against the defendants.

Like other payday lenders in recent years, this operation has claimed in state legal proceedings that it is affiliated with Native American tribes, and therefore immune from legal action.  However, the FTC alleges that the defendants’ claims of tribal affiliation do not exempt them from complying with federal law.

This is the second time in seven months that the FTC has brought suit against a payday lender that has used a tribal affiliation defense against actions by state authorities.  The FTC recently expanded its first such case, against Payday Financial, LLC, adding charges that the operation illegally sued debt-burdened consumers in a South Dakota tribal court that did not have jurisdiction over their cases.

In this case, as part of its continuing crackdown on scams that target consumers in financial distress, the FTC filed a complaint in U.S. district court charging that a web of defendants, including AMG Services, Inc., three other Internet-based lending companies, seven related companies, and six individuals, violated federal law by deceiving consumers when providing and collecting on payday loans.  One of the defendants who allegedly controlled the lending companies is automobile racer Scott Tucker.  According to documents filed with the court, Tucker and his co-defendant and brother, Blaine Tucker, allegedly transferred more than $40 million dollars collected from consumers by the payday lending companies to another company Scott Tucker controls, Level 5 Motor Sports, for “sponsorship” fees that benefit Scott Tucker’s automobile racing. 

The Tuckers and the other defendants claimed they would charge borrowers the amount borrowed plus a one-time finance fee.  Instead, the FTC alleges, the defendants made multiple withdrawals from borrowers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan.  The defendants also falsely threatened that consumers could be arrested, prosecuted, or imprisoned for failing to pay and that the defendants would sue them if they did not pay, according to the FTC.  

According to documents filed by the FTC, over the last five years, the defendants’ deceptive and illegal tactics have generated more than 7,500 complaints to law enforcement authorities.  In many cases, the defendants’ inflated fees left borrowers with supposed debts of more than triple the amount they had borrowed.  In one typical example, the defendants allegedly told consumer Eric Barboza that a $500 loan would cost him $650 to repay.  But the defendants attempted to charge him $1,925 to pay off the $500 loan, and threatened him with arrest when he balked at paying that amount. 

The FTC’s complaint alleges that defendants’ misrepresentations and false threats violated the Federal Trade Commission Act.  According to the FTC, the defendants also violated the Truth in Lending Act by failing to accurately disclose the annual percentage rate and other loan terms; and violated the Electronic Fund Transfer Act by illegally requiring consumers to preauthorize electronic fund transfers from their accounts.

Consumers are urged to consider the alternatives to payday loans.  For more information, see, Fraudulent Online Payday Lenders:  Tapping Your Bank Account Again and Again. 

The Commission vote authorizing the staff to file the complaint was 4-0.  The FTC brought suit in the U.S. District Court for the District of Nevada on April 2, 2012.  The complaint names as defendants Scott A. Tucker; Blaine A. Tucker; Timothy J. Muir; Don E. Brady; Robert D. Campbell; Troy L. LittleAxe; AMG Services, Inc.; Red Cedar Services, Inc.; SFS, Inc.; Tribal Financial Services; AMG Capital Management, LLC; Level 5 Motorsports, LLC; LeadFlash Consulting, LLC; PartnerWeekly, LLC; Black Creek Capital Corporation; Broadmoor Capital Partners, LLC; and The Muir Law Firm, LLC.  The complaint also names as relief defendants Kim C. Tucker and Park 269 LLC.

NOTE:  The Commission files a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest.  The complaint is not a finding or ruling that the defendant has actually violated the law.  

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook and follow us on Twitter.

(FTC File No. 1123024)