Two fraudulent online payday lending operations based in the Kansas City area have been temporarily shut down after being sued by federal authorities.
Combined, the two schemes allegedly bilked at least $36 million, and likely substantially more, from consumers nationwide, officials from the Consumer Financial Protection Bureau and the Federal Trade Commission said Wednesday.
In both cases, the companies are accused of using sensitive personal information that they purchased about individual consumers to access their bank accounts, deposit $200 to $300 in payday loans, and make withdrawals of up to $90 every other week, despite the fact that many of the consumers never agreed to take out a payday loan.
The firms are also accused of generating phony loan documents after the fact to make it appear that the loans were legitimate.
"It is an incredibly brazen and deceptive scheme," CFPB Director Richard Cordray told reporters Wednesday. "These kinds of predatory tactics are obviously inexcusable."
One of the two operations was headed by Richard Moseley, Sr., Richard Moseley, Jr., and Christopher Randazzo, who operated a web of offshore-based corporate entities, according to the CFPB. The other scheme was run by Timothy Coppinger and Frampton "Ted" Rowland III, the FTC said.
Despite the similarities between the two operations, and the fact that they were both based in the Kansas City area, which has long been a payday-loan industry hub, officials from the two agencies said they did not find evidence of coordination between them.
Both schemes relied on so-called lead generators, websites that solicit information from prospective payday borrowers, including bank account numbers in some cases, and then sell the information.
On a conference call with reporters Wednesday, the FTC identified one Kansas City area-based lead generator, eData Solutions, as having sold consumer data that was used to perpetrate fraud.
Federal authorities are now working to bring suits against lead generators, said Jessica Rich, director of the FTC's division of consumer protection. "Please stay tuned," she said.
The online lenders relied on customer relationships they had with banks in order to access consumers' bank accounts via the automated clearing house network.
Officials from the two agencies did not allege any wrongdoing by banks, but they did identify four banks Missouri Bank and Trust Co. of Kansas City, Bay Cities Bank in Tampa, Mutual of Omaha Bank, and U.S. Bancorp in Minneapolis as having provided banking services to the defendants.
Banks that have relationships with online payday lenders have been under the microscope for a year and a half, as part of the Department of Justice probe known as Operation Choke Point.
The DOJ has faced sharp criticism from many in the financial industry for targeting banks that may be used by fraudsters, rather going after than the fraudsters themselves.
On Wednesday, the Online Lenders Alliance, a trade group that represents online payday lenders and lead generators, applauded the FTC and the CFPB, saying that the defendants are not among its members.
"Online lenders that defraud consumers should be prosecuted and put out of business," Lisa McGreevy, the group's president, said in a news release.
When asked whether the two lawsuits say anything broadly about online payday lending, the FTC's Rich said: "I would not want to generalize to the entire industry from these fraudulent actors, but I would not that we are seeing this kind of conduct more and more from fraudsters."
Authorities allege that firms controlled by Coppinger and Rowland issued $28 million in payday loans during an 11-month period, while withdrawing more than $46.5 million from the consumers' bank accounts. The companies operated by Randazzo and the Moseleys made $97.3 million in payday loans during a 15-month period, while collecting $115.4 million in return.
Between the two operations, consumers allegedly lost more than $36 million during the time period examined by authorities. But because both schemes date back to at least 2011, the total amount that was defrauded from consumers is likely higher, authorities said.
They acknowledged that some of the consumers did consent to take out payday loans, but said that even those loans were illegal, either because the lenders made false or misleading statements about the terms to the borrowers or for other reasons. Authorities would not say whether the cases have also been referred to the Justice Department for possible criminal prosecution.
John Aisenbrey, a lawyer representing Randazzo and the Moseleys, did not immediately return a call seeking comment. Neither did Patrick McInerney, who is representing Coppinger.
Both lawsuits were filed in early September, and the defendants have not yet formally responded to the allegations.
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.