The Federal Trade Commission filed an injunction in federal court Monday charging that a web of defendants - including AMG Services Inc., several Internet-based lending companies and race car driver Scott Tucker - violated federal laws by deceiving consumers when providing and collecting on payday loans.

According to court documents, Tucker - who allegedly controlled the lending companies - and his co-defendant and brother, Blaine Tucker, 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.

The operation has claimed in legal proceedings that it is affiliated with Native American tribes, and therefore immune from legal action. However, the FTC alleges that the defendants’ claims of tribal affiliation do not exempt them from complying with federal law.

The Tuckers and the other defendants claimed they would charge borrowers the amount borrowed plus a one-time finance fee. Instead, the FTC alleges, the defendants made multiple withdrawals from borrowers’ bank accounts and assessed a new finance fee each time, without disclosing the true costs of the loan.  

The defendants also falsely threatened that consumers could be arrested, prosecuted, or imprisoned for failing to pay and that the defendants would sue them if they did not pay, according to the FTC.  

According to documents filed by the FTC, over the last five years, the defendants’ deceptive and illegal tactics have generated more than 7,500 complaints to law enforcement authorities. In many cases, the defendants’ inflated fees left borrowers with supposed debts of more than triple the amount they had borrowed. 

In one typical example, the defendants allegedly told consumer Eric Barboza that a $500 loan would cost him $650 to repay. But the defendants attempted to charge him $1,925 to pay off the $500 loan, and threatened him with arrest when he balked at paying that amount.

The FTC’s complaint alleges that defendants’ misrepresentations and false threats violated the Federal Trade Commission Act. According to the FTC, the defendants also violated the Truth in Lending Act by failing to accurately disclose the annual percentage rate and other loan terms; and violated the Electronic Fund Transfer Act by illegally requiring consumers to preauthorize electronic fund transfers from their accounts.

This is the second time in seven months that the FTC has brought suit against a payday lender that has used a tribal affiliation defense against actions by state authorities. The FTC last month expanded its first such case, against Payday Financial LLC (see story) adding charges that the operation illegally sued consumers in a South Dakota tribal court that did not have jurisdiction over their cases.

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