Consumer Finance Insights
July 8, 2015

Payday Lenders Agree to Exit Consumer Lending Business in Settlement With FTC

On July 7, 2015, the FTC ​announced that it reached two stipulated settlements (available here and here) with payday lenders who allegedly deceived customers by signing them up for loans without their permission and then withdrawing “finance” charges indefinitely. The settlements stem from allegations in a complaint​ filed last year that defendants “purchase consumers’ sensitive financial information from online lead generators or data brokers, and then use the data to make unauthorized payday loans to consumers who never consented to Defendants’ loan terms and who may not have applied for a payday loan at all.” The defendants would then allegedly misrepresent to customers that they had authorized these loans and were bound by their terms. Defendants’ practice was to “deposit the purported ‘principal’ to consumers’ checking accounts without the consumer’s authorization and then make unauthorized withdrawals from consumers’ accounts every two weeks indefinitely.​” If customers closed their accounts, defendants would allegedly misreprepresent to third-party debt brokers, debt buyers, or debt collectors that the loans were valid. The complaint alleged that these actions violated the FTC Act, the Truth in Lending Act, and the Electronic Funds Transfer Act. In the stipulated settlements, defendants agreed that they would be banned entirely from the consumer lending business, including collecting payments, communicating about loans, and selling debt. The settlements further ordered that any monies purportedly owed to defendants by consumers be extinguished and that judgment totalling roughly $54 million be entered against the defendants. Both proposed orders have been submitted to the district court for approval.

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