In a record-setting settlement, the Federal Trade Commission has recovered $21 million from two payday lenders accused of deceiving borrowers by charging them undisclosed, bloated fees.
According to the FTC, AMG Services, Inc. and MNE Services, Inc. will waive another $285 million in customer charges as part of the settlement.
The payday lenders allegedly misled borrowers about the fees they charged for their loans. For example, the loan documents said a $300 loan would cost $390 to pay back. But borrowers were actually charged $975, the FTC said.
Jessica Rich, director of the Bureau of Consumer Protection, said in a statement:
The settlement requires these companies to turn over millions of dollars that they took from financially distressed consumers. … It should be self-evident that payday lenders may not describe their loans as having a certain cost and then turn around and charge consumers substantially more.
The FTC said the companies violated the Truth In Lending Act “by failing to accurately disclose the annual percentage rate and other loan terms and making preauthorized debits from consumers’ bank accounts a condition of the loans, in violation of the Electronic Funds Transfer Act.”
The payday lenders operated under the names Ameriloan, United Cash Loans, US Fast Cash, Advantage Cash Services and Star Cash Processing.
The companies are affiliated with racecar driver Scott Tucker and his late brother, Blaine. The FTC said the Tucker brothers allegedly transferred more than $40 million 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.
When I was fresh out of college, working as a reporter for $6 an hour, just a sliver over minimum wage, I lived precariously from paycheck to paycheck. When I had unexpected expenses, like a medical bill or new tires for my car, I used a payday loan to help cover the cost.
Unfortunately, the high interest rate on the short-term payday loan would eat up any extra money on my next paycheck, so I’d take out another payday loan to help me limp along to my next payday. It was a vicious cycle.
Not all payday lenders are alike. The one in this video charges its customers only “a tip,” but as Stacy Johnson suggests, the need for a payday loan in the first place suggests that your financial situation probably could use some massaging.
Have you ever used a payday lending service? Share your experiences below or on our Facebook page.