U.S. v. Adrian Rubin, filed recently in federal court in Pennsylvania, ought to be required reading for anyone studying the history of online payday lending.
Rubin, a 58-year-old resident of Jenkintown, Pa., is charged with participating in a long-running racketeering conspiracy involving various payday lending businesses. The feds allege that Rubin, who pleaded guilty to tax evasion charges in 1997, falsified records to hide his own role, as someone with a criminal record, in the operations.
More interestingly, the criminal complaint offers an account of how, over a 15-year period, Rubin and his associates purportedly sought and sometimes found different ways around state lending rules. The alleged contortions mirror industrywide changes in Internet payday lending.
In the late 1990s, Rubin sought to take advantage of the fact that federally insured banks were not subject to state laws capping interest rates. He and his associates in an Internet payday lending venture met with a lawyer for County Bank in Rehoboth Beach, Del., and set up what prosecutors described as a "sham arrangement" in which the bank would appear to be the lender, according to the complaint.
"The practice of a payday lender pretending to issue its loans through [a Federal Deposit Insurance Corp.]-insured bank in order to avoid state usury laws was common at the time and was referred to by industry insiders as 'rent-a-bank,'" the complaint states.
Eventually, County Bank faced criticism from federal regulators for doing business with someone who had a criminal record, according to the complaint. Then Rubin removed his name from the contract documents and replaced it with his father-in-law's name, prosecutors allege. The complaint states that County Bank resumed its business relationship with Rubin's firm even though bank officials knew that Rubin was still helping to run the company.
In the early 2000s, County Bank fought efforts by state and federal officials to push banks out of the payday lending business, but it eventually complied with regulators' orders sever such relationships. The bank's current president, Joseph Shockley, did not immediately return a message seeking comment Tuesday. Prosecutors did not charge the bank with any wrongdoing.
Around 2003, Rubin was advised by a lawyer to move his payday lending operations overseas or to Delaware, Utah or New Mexico, jurisdictions that the lawyer describes as being "usury friendly," according to the complaint.
Rubin allegedly incorporated a firm in Utah, and the company made loans to consumers in all 50 states, including states that ban payday lending. The Utah-based firm stopped doing business around December 2007, after the state's banking commission opened an investigation, according to prosecutors.
Next, Rubin set up shop in Delaware, establishing a company that made online payday loans under multiple names, including "Payday Loan Yes," prosecutors allege. Between 2007 and 2011, the Delaware-based firm operated without any federal or state licenses, the complaint states.
Finally, prosecutors allege that Rubin tried unsuccessfully to establish a relationship with an Indian tribe, in another effort to get around state-by-state interest rate caps. Some tribes with ties to the payday lending business have asserted that their sovereign immunity shields them from being sued under state law.
Stephen Lacheen, a lawyer who is reportedly representing Rubin, did not immediately return a call seeking comment Tuesday.
Rubin faces charges of mail fraud, aiding and abetting mail fraud, conspiracy to commit mail fraud and wire fraud, and conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act. Prosecutors said in a press release Monday that if Rubin is convicted, he faces at least 10 years in prison under federal sentencing guidelines.
The Internet payday lending industry includes both companies that have licenses in all of the states where their borrowers live, as well as firms that do not. The Pew Charitable Trusts found in a report last year that fraud and abuse are widespread in the online payday lending business, with the problems concentrated at unlicensed firms.