Alert July 23, 2013

Florida Federal Court Holds Payday Lender Engaged in UDAP

The United States District Court for the Middle District of Florida held that an online payday loan referral service, as well as entities operating out of the same office space that provided discount services, engaged in unfair and deceptive acts and practices in violation of Section 5 of the FTC Act. The FTC filed suit against defendants and sought injunctive relief alleging that defendants violated Section 5 of the FTC Act by debiting consumers’ bank accounts without their consent and by failing to disclose material information on their websites. The FTC alleged that during the loan application process for payday loans, the websites presented consumers with offers for a discount program (e.g., long-distance phone service) through banner ads and pop-up boxes. Consumers were charged varying monthly or annual fees for the discount programs. However, many consumers were unaware they enrolled in the discount programs rather than merely submitting an application for a payday loan.

Agreeing with the FTC that defendants "took advantage of financially distressed consumers," the Court found that defendants were engaged in unfair practices—unfair billing practices—because defendants’ practices resulted in substantial harm to consumers, consumers could not reasonably avoid injury due to the "confusing and misleading way the payday loan application process operated" and the harm to consumers was not outweighed by a countervailing benefit, as the vast majority of consumers never used the discount services. The Court also held defendants engaged in deceptive acts because they did not "adequately disclose to consumers that in addition to using consumers’ financial information in connection with payday loan applications, [they] would also use that information to charge the consumers for unrelated products and services." As a result, the Court issued a permanent injunction and awarded over $9.5 million in equitable relief, which represented defendants’ net revenue from the marketing activities.