New York authorities announced Tuesday that they have sent subpoenas to 16 firms that generate leads for online payday lenders, part of an ongoing effort to shut down the burgeoning industry's lending to Empire State residents.
The companies that received subpoenas are suspected of marketing the loans in a deceptive or misleading way, New York officials said in a news release. The firms are being asked to turn over their marketing materials, contracts for the sale of consumer data, and privacy policies, among other documents.
New York has one of the strictest interest rate caps in the country, and the state has been among the most aggressive in seeking to keep out online companies that make loans at rates exceeding its cap.
"Payday lending is illegal in New York and so is the deceptive marketing of those unlawful loans by lead generators," New York Financial Services Superintendent Benjamin Lawsky said in the news release.
"What's worse is that we've received complaints from New Yorkers about lead generation companies related to scams, harassing phone calls, deceptive advertising, and privacy breaches."
Many of the companies that make small-dollar loans to consumers over the Internet rely on lead generation firms to sign up customers. The lead generators often collect bank account information and other sensitive personal data, and then sell it to the highest bidder. The firms can receive $200 or more for each referral, industry sources have said.
Among the complaints that New York has received about lead generation firms are allegations of harassing phone calls, consumer privacy breaches, and false and misleading advertising pitches. Scams include enticing consumers to pay substantial upfront fees in order to get a loan which the consumer never receives, officials said.
Peter Barden, a spokesman for the Online Lenders Alliance, an industry group, said in an email that member lead-generation firms are required to follow certain "best practices," which ensure that consumer data is protected and shared only in compliance with applicable laws.
The Online Lenders Alliance reports all instances of fraud to the Federal Trade Commission and other law enforcement agencies, Barden added.
The lead generation companies that received subpoenas are: Allied Cash Advance, Bahamas Marketing Group, Blue Global, DJR Group, Fix Media Group, Hydra Fund II, LightSword, Payday Loan Ranger, Payday Mobility, PayDayForest, PayDayMall, Personal Advance, Selling Source, US Cash Loans, Valley Trust, and WebMarketerLive. Some of the firms do business under different names.
The subpoenas come on the heels of a series of actions the New York Department of Financial Services took earlier this year to keep Internet-based lenders out of the state.
New York sent cease-and-desist lenders in August to nearly three dozen online lenders, while also pressuring banks not to process payments for the companies. Some of the online lenders are affiliated with Indian tribes, and they maintain that they are beyond the reach of New York officials due to tribal sovereignty immunity.
"We want to make payday lending into New York, over the Internet, as unappetizing as possible," Lawsky said at the time.