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FTC Charges Internet Payday Lenders with Failing to Disclose Key Loan Terms and Using Abusive and Deceptive Collection Tactics

FTC Charges Internet Payday Lenders with Failing to Disclose Key Loan Terms and Using Abusive and Deceptive Collection Tactics

November 12, 2008

The Federal Trade Commission and the State of Nevada have charged 10 related Internet payday lenders and their principals, based mainly in the United Kingdom, with violating federal and state law by not disclosing key loan terms to U.S. consumers and using abusive and deceptive collection tactics.

According to the complaint filed by the FTC and the State of Nevada, through Web sites such as www.cash2day4u.com, the defendants offered consumers loans of $500 or less within 24 hours without requiring a credit check, proof of income, or documentation. Consumers who applied for a loan on the defendants’ Web site were required to provide their bank account and Social Security numbers.

As stated in the complaint, the defendants’ representatives called applicants and told them that they qualified for a loan, typically around $200, that had to be repaid by their next payday with a fee ranging from $35 to $80. They explained that if the loan was not repaid by then, it would be extended automatically for an extra fee that would be debited from the consumer’s bank account “until the loan is repaid.” Consumers were required to give the defendants access to their accounts for payment of the fees. Some consumers were told to call the defendants before their payday to ask them to debit the full loan amount from their accounts.

The complaint states that the defendants did not disclose key loan terms in writing, including the annual percentage rate, the payment schedule, the amount financed, the total number of payments, and any late payment fees. Consumers who asked for written disclosures were told that the transaction was oral only. According to the complaint, the defendants told consumers that they would send written disclosures after the phone call, but consumers never received them. After paying the defendants – sometimes hundreds of dollars above the loan amounts – many consumers concluded that they had more than repaid their loans and terminated the defendants’ access to their bank accounts, often by closing the accounts. Many consumers then received abusive and deceptive collection calls from the defendants aimed at regaining access to their accounts.

According to the complaint, the defendants falsely claimed that consumers were legally obligated to repay the loans, even though the loans did not comply with payday lending laws in many consumers’ states and the defendants were not licensed to make consumer loans in thosestates. The defendants falsely threatened consumers with arrest, lawsuits, property seizure, or wage garnishment, and repeatedly called consumers, coworkers, and employers at their workplace, using abusive language and disclosing consumers’ purported debts.

The corporate defendants are Cash Today, Ltd., The Heathmill Village, Ltd., Leads Global, Inc., Waterfront Investments, Inc., ACH Cash, Inc., HBS Services, Inc., Lotus Leads, Inc., First4Leads, Inc., Rovinge International, Inc., and The Harris Holdings, Ltd., each also doing business as Cash Today, Route 66 Funding, Global Financial Services International, Ltd., Interim Cash, Ltd., and BIG-INT, Ltd. The individual defendants are Aaron Gershfield, Ivor Gershfield, and Jim Harris.

The defendants are charged with violating the FTC Act by using unfair and deceptive collection tactics, including falsely threatening consumers with arrest or imprisonment, falsely claiming that consumers are legally obligated to pay the debts; making false threats to take legal action that they cannot take; and repeatedly calling consumers at work and using abusive and profane language and disclosing consumers’ purported debts to coworkers, employers, and other third parties.

The defendants are also charged with violating the Truth in Lending Act and Regulation Z by failing to make required written disclosures, clearly and conspicuously, before consummating a consumer credit transaction, including the amount financed, itemization of the amount financed, the finance charge, the annual percentage rate, the payment schedule, the total number of payments, and any late payment fees. In addition, they are charged with violating Nevada’s Deceptive Trade Act by not disclosing loan terms, making false representations in collecting debts, and selling loans to consumers without licenses.

Press Release

FTC Obtains Court Order Halting Internet Payday Lenders Who Failed to Disclose Key Loan Terms and Used Abusive and Deceptive Collection Tactics

February 23, 2009

In a case filed by the Federal Trade Commission and the State of Nevada, a federal court has ordered a halt to certain practices by seven U.S.-based companies and an individual operating as part of an international Internet payday lending operation. They were charged with failing to disclose key loan terms and using abusive and deceptive collection tactics in violation of federal and state laws. The U.S.-based companies and their principal agreed to the court order, which will remain in effect pending trial. The FTC and Nevada seek to permanently bar the defendants from future violations and make them give up the money they obtained using the allegedly illegal collection tactics.

According to the FTC’s complaint, the companies offered loans of $500 or less within 24 hours without requiring a credit check, proof of income, or documentation. Consumers were told that they qualified for a loan that had to be repaid by their next payday with a fee ranging from $35 to $80, and that if the loan was not repaid by then, it would be extended automatically for an extra fee that would be debited from the consumer’s bank account “until the loan is repaid.”

The FTC charges the companies with violating the FTC Act by using unfair and deceptive collection tactics, including falsely threatening consumers with arrest or imprisonment, falsely claiming that consumers are legally obligated to pay the debts, threatening to take legal action they cannot take, repeatedly calling consumers at work and using abusive and profane language, and disclosing consumers’ purported debts to co-workers, employers, and other third parties. They also allegedly violated the Truth in Lending Act and Regulation Z by failing to make required written disclosures, clearly and conspicuously, before consummating a consumer credit transaction, including the amount financed, itemization of the amount financed, the finance charge, the annual percentage rate, the payment schedule, the total number of payments, and any late payment fees.

Pending trial, the court order bars the U.S.-based companies and their principal from deceptive debt collection practices such as misrepresenting that consumers can be arrested or imprisoned for failing to pay debts, that consumers are legally obligated to pay the full amount of a debt claimed as owed, and that for nonpayment consumers may or will be subject to legal action, such as a lawsuit, seizure of property, or garnishment of wages. The preliminary injunction also prohibits unfair collection practices such as continuously and repeatedly calling consumers and third parties at consumers’ work places, using obscene or threatening language toward consumers and third parties, and disclosing the existence of consumers’ purported debts to third parties.

The U.S.-based companies and their principal also are barred from violating the Truth in Lending Act and Regulation Z, in the extension of closed-end credit, by failing to make the required TILA disclosures as provided by law, and by failing in any other manner to comply with TILA and Regulation Z. They also are prohibited from violating the laws of the State of Nevada by making loans from Nevada or identifying Nevada as the source of a loan or as their principal place of business, unless properly licensed; and by failing to provide notice and disclosure of all material facts as required by state law, including failing to disclose the location, physical address, and non-toll-free telephone number of all of their locations. In addition, the U.S.-based companies and their principal are prohibited from violating any state or federal law regarding the sale or lease of goods or services, including using coercion, duress, or intimidation in any kind of transaction.

The injunction also bars the U.S.-based companies and their principal from disclosing or benefitting from customers’ personally identifiable or financial information, and it contains record-keeping provisions to allow the FTC to monitor compliance with the order.

The defendants named in the court order are Leads Global, Inc., Waterfront Investments, Inc., ACH Cash, Inc., HBS Services, Inc., Lotus Leads, Inc., First4Leads, Inc., and Rovinge International, Inc., and Jim Harris. Also charged in the complaint but not named in the order are four United Kingdom-based companies operating in the U.S. as Cash Today, Route 66 Funding, Global Financial Services International, Ltd., and Interim Cash, Ltd., and their principals, Aaron Gershfield and Ivor Gershfield.

Press Release

Internet Payday Lenders Will Pay $1 Million to Settle FTC and Nevada Charges; FTC Had Challenged Defendants’ Illegal Lending and Collection Tactics

September 21, 2009

An international Internet payday lending operation will pay $1 million to settle Federal Trade Commission and State of Nevada charges that it failed to disclose key loan terms and used unlawful debt collection tactics.

The defendants operated from the United Kingdom and targeted consumers in the United States, who were misled into believing that the defendants operated from Nevada. According to a complaint filed by the FTC and Nevada in 2008, the defendants told consumers that the loans had to be repaid by their next payday with a fee ranging from $35 to $80, or the loans would be extended automatically for an extra fee debited from consumers’ bank accounts until the loans were repaid.

The FTC charged the defendants with violating the FTC Act by using unfair and deceptive collection tactics. The Commission alleged that they falsely threatened consumers with arrest or imprisonment, falsely claimed that consumers were legally obligated to pay the debts, threatened to take legal action they could not take, repeatedly called consumers at work using abusive and profane language, and improperly disclosed consumers’ purported debts to third parties. They also allegedly failed to make required written disclosures to consumers before consummating a consumer credit transaction, such as the amount financed, the annual percentage rate, payment schedule, total number of payments, and any late payment fees, in violation of the Truth in Lending Act (TILA) and Regulation Z.

The settlement order requires the defendants to pay $970,125 to the FTC and $29,875 to the State of Nevada. The order prohibits them from falsely claiming that consumers may be arrested or imprisoned for failing to pay debts, that they are legally obligated to pay the full amount of a purported debt, and that for nonpayment they are subject to lawsuit, seizure of property, or garnishment of wages. The defendants also are barred from repeatedly calling consumers’ work places, using obscene or threatening language toward consumers and third parties, and disclosing the existence of consumers’ purported debts to third parties.

The order bars the defendants from violating the Truth in Lending Act and Regulation Z, including by requiring them to make the required TILA disclosures in extending closed-end credit. The defendants must disclose clearly, in writing, in a form consumers can keep and before a transaction is made, the interest rate and other key terms of their loans; a repayment schedule showing dates when consumers’ bank accounts will be debited for the loans; payments and fees for late or non-payment of the loans; and a statement that payday loans may be limited or prohibited in some states. In addition, the order requires them to obtain consumers’ written confirmation that they have received the required disclosures before making a transaction and, when collecting debts, the defendants must provide consumers, upon request, a written statement of amounts and fees paid and due. The order contains record-keeping and reporting provisions to allow the FTC to monitor compliance.

The order also includes provisions relating to alleged violations of Nevada law. The order prohibits the defendants from violating Nevada state consumer protection law when conducting business from the State of Nevada or when selling goods or services to Nevada residents, including failing to be properly licensed, failing to provide notice and disclosure of all material facts as state law requires, and failing to comply with any state or federal law in selling goods or services.

The settling corporate defendants are Cash Today, Ltd., and The Heathmill Village, Ltd. (both registered in the United Kingdom); The Harris Holdings, Ltd. (registered in Guernsey, an island between England and France); Leads Global, Inc., Waterfront Investments, Inc., ACH Cash, Inc., HBS Services, Inc., Rovinge International, Inc.; and Lotus Leads, Inc. and First4Leads, Inc. (both now dissolved); each also doing business as Cash Today, Route 66 Funding, Global Financial Services International, Ltd., Interim Cash, Ltd., and Big-Int, Ltd. The settling individual defendants are Aaron Gershfield and Ivor Gershfield. The FTC dismissed from the case Jim Harris, who was named in the complaint; he has voluntarily entered into a separate agreement with the State of Nevada that governs his future conduct under state law and provides that he will pay the state a civil penalty.

The FTC appreciates the assistance of the United Kingdom’s consumer and competition authority, the Office of Fair Trading, in this matter.

Press Release

Complaint
Stipulated Preliminary Injunction and Order
Preliminary Injunction and Order
Stipulated Final Judgement
Stipulated Dismissal




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