Two federal regulators announced lawsuits on Wednesday against two separate payday lending operations.
The defendants in the two cases are accused of funding unapproved loans for consumers who did not request them, then taking payments directly from checking accounts without approval. Questionable debt sales and collection practices are also cited, according to the lawsuits.
The schemes allegedly bilked at least $36 million from consumers nationwide, officials from the Consumer Financial Protection Bureau and the Federal Trade Commission said. Because both schemes date back to at least 2011, the total amount defrauded from consumers is likely higher, authorities said.
The CFPB sued online payday lender Hydra Group for allegedly running a scheme where it issued $97 million in payday loans and collected $115 million from consumers in return. Defendants Richard Moseley, Sr., Richard Moseley, Jr. and Christopher Randazzo, allegedly operate the business through a web of corporate entities created to skirt regulatory oversight.
Their collection of roughly 20 businesses includes SSM Group, Hydra Financial Limited Funds, PCMO Services, and Piggycash Online Holdings. The entities are based in Kansas City, Missouri, but many of them are incorporated offshore, in New Zealand or the Commonwealth of St. Kitts and Nevis.
The lawsuit alleges Hydra Group used information bought from online lead generators to access consumers checking accounts to illegally deposit payday loans and withdraw fees without consent. The company then used falsified loan documents to claim that the consumers had agreed to the phony online payday loans. Company officials could not be immediately reached for comment.
"The Hydra Group has been running a brazen and illegal cash-grab scam, taking money from consumers bank accounts without their consent," said CFPB Director Richard Cordray. "The utter disregard for the law shown by the Hydra Group and the men controlling it is shocking."
The FTCs lawsuit was filed in the same district court as the CFPB's action and is presided over by the same judge.
Timothy Coppinger and Frampton "Ted" Rowland III ran an online payday scheme involving 12 companies operating under the umbrella of CWB Services LLC. The scheme used personal financial information bought from third-party lead generators or data brokers to make unauthorized deposits of between $200 and $300 into consumers bank accounts.
The deposits were made in 2012 and 2013 in the guise of loans and the defendants then began to withdraw recurring finance charges that exceeded the amount of the supposed loans, according to the FTC. The scheme often targeted consumers who previously had submitted their personal financial information including bank account numbers to a website that offered payday loans, the FTC said.
The defendants issued $28 million in supposed loans and withdrew $46.5 million from consumers' bank accounts, the FTC said.
In both suits, U.S. District Judge Dean Whipple has issued a temporary restraining order that appoints a receiver to take over the operations and freezes the companies' assets. Authorities are asking the judge to keep those measures in place while the cases proceed.
The cases continue a recent regulatory crackdown on the payday loan industry.
Payday loan giant ACE Cash Express in July reached a $10 million agreement with the CFPB to settle charges it used illegal collection tactics and pressured borrowers into taking out more loans by threatening lawsuits and criminal prosecution.
The CFPB found that ACE created a false sense of urgency to lure overdue borrowers into payday debt traps by encouraging overdue borrowers to temporarily pay off their loans and then quickly re-borrow from ACE.
Even after consumers explained to ACE that they could not afford to repay the loan, ACE would continue to pressure them into taking on more debt. Borrowers would pay new fees each time they took out another payday loan from ACE, according to the CFPB.
ACE offers the loans online and at many of its 1,500 retail storefronts. The storefronts are located in 36 states and the District of Columbia.??ACE responded that the CFPB's allegations related "exclusively to some of Ace's collection practices prior to March 2012." The CFPB began supervising payday lenders in January 2012.
A study released in March found that four out of five payday loans are rolled over or renewed within 14 days. It also found that the majority of all payday loans are made to borrowers who renew their loans so many times that they end up paying more in fees than the amount of money they originally borrowed.