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The Federal Trade Commission has scored another legal victory in its crackdown against deceptive payday lenders with the latest finding from U.S. District Judge Gloria M. Navarro in the case against AMG Services.

Judge Navarro ruled last week that the defendants deceived consumers about the cost of their loans by imposing undisclosed charges and inflated fees.  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 one consumer 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.  The defendants used deceptive loan documents in connection with at least five million consumer loans. 

Adopting an earlier recommendation from Magistrate Judge Cam Ferenbach, Judge Navarro found that the defendants’ lending practices were deceptive because by failing to disclose charges and inflating fees, they hid from consumers the true cost of the payday loans they offered. 

Last week’s decision follows another significant ruling in the FTC’s favor. In March, after the defendants claimed their affiliation with American Indian tribes shielded them from federal law enforcement, Judge Navarro ruled against them finding that the FTC Act grants the agency authority to regulate arms of Indian tribes, their employees, and their contractors.

In her latest decision, Judge Navarro noted that the key portions of defendants’ loan documents were “convoluted,” “buried,” “hidden,” and “scattered.”  And she further cited evidence indicating that the defendants’ “employees were instructed to conceal how the loan repayment plans worked in order to keep potential borrowers in the dark.”

“Like any other contract, payday lending contracts must disclose the true cost consumers will pay,” said Jessica Rich, Director of the agency’s Bureau of Consumer Protection. “This is especially important because many consumers who take out payday loans calculate the amount they can afford to pay down to the dollar.”   

The FTC has sued a number of payday lenders for engaging in unfair and deceptive practices targeting financially distressed consumers who are seeking short-term loans.

When the FTC sued the defendants behind AMG Services in 2012, it alleged that they violated the FTC Act by piling on undisclosed and inflated fees, and by threatening borrowers in debt collection calls with arrest and lawsuits. The defendants violated the Truth in Lending Act by giving inaccurate loan information to borrowers, and the Electronic Fund Transfer Act by requiring consumers to preauthorize electronic withdrawals from their bank accounts as a condition of obtaining credit, according to the FTC.    

The Federal Trade Commission reached a partial settlement on other issues last year with the principal AMG defendants. The order bars the settling defendants from using threats of arrest and lawsuits as a tactic for collecting debts, and from requiring all borrowers to agree in advance to electronic withdrawals from their bank accounts as a condition of obtaining credit.

Litigation in the case will continue to determine the liability of each defendant and the damages the court will impose.

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, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.