The Federal Trade Commission charged a data broker operation on Wednesday with illegally selling payday loan applicants financial information to a scam operation that took millions of dollars from consumers by debiting their bank accounts and charging their credit cards without their consent.
The data broker enterprise bought loan applications from the operators of payday loan websites and got others directly from consumers via their own payday loan websites, according to the FTC.
The defendants are: Sequoia One LLC, Gen X Marketing Group LLC, Jason A. Kotzker, Theresa D. Bartholomew, John E. Bartholomew, Jr. and Paul T. McDonnell.
Instead of passing on the loan applications to legitimate payday lenders, the defendants sold the information to companies such as Ideal Financial Solutions Inc., which purchased the financial account information for more than 500,000 consumers from the defendants and allegedly raided their accounts for at least $7.1 million. As a result, some consumers had to close their accounts or were charged fees for insufficient funds.
"Scammers used consumer information they bought from this operation to make millions in unauthorized charges," said Jessica Rich, director of the FTCs Bureau of Consumer Protection. "Companies that collect peoples sensitive information and give it to scammers can expect to hear from the FTC."
The defendants often sold payday loan applications to Ideal Financial for about 50 cents each, while legitimate lenders pay up to $100 or more. The complaint alleges they did this knowing that Ideal Financial was making unauthorized bank account debits and credit card charges.
In fact, according to the complaint, the defendants helped hide Ideal Financials fraud by using fine-print disclosures on their websites as well as other misleading tactics to avoid alerting banks to the fraudulent activity.
Three of the defendants - McDonnell and the Bartholomews - agreed to settle the FTC charges. Under proposed settlement orders, they are prohibited from selling or otherwise benefitting from customers personal information.
The order against the Bartholomews imposes a $7.1 million judgment that will be suspended upon payment of $15,000. The order against McDonnell imposes a judgment of more than $3.7 million, which will be suspended because of his inability to pay. The full judgments will become due immediately if these defendants are found to have misrepresented their financial condition.
Litigation against the other defendants continues.