Feds Target Suspected Payday Loan Scams
The Consumer Financial Protection Bureau has sued online payday lender Hydra Group for allegedly making fraudulent loans to unsuspecting consumers, then scamming them out of millions of dollars.
The allegations are nearly identical to a separate lawsuit the Federal Trade Commission filed earlier this month against CWB Services and several other companies. According to The New York Times:
In both cases, consumers submitted information about themselves — including bank account numbers — to online payday loan comparison sites. These so-called lead generators auctioned the information to payday lenders or to brokers, who resold the information, officials said. The suits say that in this case, unscrupulous buyers then used the information to deposit money into consumers’ bank accounts and then make unauthorized monthly withdrawals.
Authorities say Hydra Group and CWB Services bought the consumers’ information so they could make payday loans, then withdraw “finance charges” out of the unwitting borrowers’ bank accounts.
The CFPB said Hydra Group in a 15-month period made $97.3 million in loans, usually without consumers’ authorization, and then collected $115.4 million in return. “After depositing the payday loan, typically $200 or $300, it then withdraws a $60 to $90 ‘finance charge’ from the account every two weeks indefinitely,” the CFPB said. Thousands of dollars in finance charges were passed on to some consumers.
“The utter disregard for the law shown by the Hydra Group and the men controlling it is shocking, and we are taking decisive action to prevent any more consumers from being harmed,” CFPB director Richard Cordray said in a statement.
Meanwhile, the FTC alleges that CWB Services, along with other related companies, issued $28 million in payday loans in an 11-month period to unwitting consumers, and then extracted $46.5 million from those consumers’ bank accounts, USA Today said.
Like the Hydra Group payday loans, consumers would find a $200 to $300 loan deposit, followed by withdrawals of $60 to $90 for finance charges every couple of weeks, according to the Times.
“This egregious misuse of consumers’ financial information has caused significant injury, especially for consumers already struggling to make ends meet,” said Jessica Rich, director of the FTC’s consumer protection bureau.
In most cases, consumers had been comparison shopping for payday loans, but hadn’t actually applied for a loan, so were caught off guard when extra money showed up in their account. In other cases, “consumers had authorized a loan for what they thought was a one-time fee but found that payments had been withdrawn but not applied to their principal,” the Times said.
When consumers complained or banks questioned the withdrawals on behalf of their customers, the payday loan firms allegedly presented false authorization documents.
High-interest payday loans have been under fire in recent years for trapping low-income borrowers in a perpetual cycle of mounting debt.
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This article was originally published on MoneyTalksNews.com as 'Feds Target Suspected Payday Loan Scams'.
