Two online payday-lending companies linked to professional racecar driver, Scott Tucker, have agreed to pay $21 million to the FTC to resolve charges that they violated the law by charging consumers undisclosed and inflated fees. In addition to the $21 million, a record recovery in a payday lending case, that the companies have agreed to pay, another $285 million in charges that were assessed but not collected will be waived. The FTC’s complaint alleges that the companies violated the FTC Act, the Truth in Lending Act (“TILA”), and the Electronic Funds Transfer Act (“EFTA”) by misrepresenting to consumers how much loans would cost them, by failing to accurately disclose the annual percentage rate and other loan terms, and by making preauthorized debits from consumers’ bank accounts a condition of the loans. The settlement comes on the heals of a U.S. district court ruling in Nevada finding that the companies’ loan documents were deceptive and violated TILA.
The record $21 million settlement is another hit for the payday loan industry, which has continued to come under the scrutiny of the FTC. The settlement not only impacts these companies financially, but also requires the companies to make substantial changes in their business practices and bans the companies from violating either TILA or EFTA. It will be interesting to see how this record settlement impacts the payday-loan business model, and whether such companies can survive the FTC’s focus.