Two Lenders Settle Charges in $353 Million FTC Case (Jan. 6, 2016)
Two payday lenders have settled Federal Trade Commission charges over allegedly hitting customers undisclosed and inflated fees. Under terms of stipulated court orders, Red Cedar Services Inc. and SFS Inc. each must pay $2.2 million and waive a total of $68 million in fees charged to consumers but not yet collected. The latest settlements are part of a larger case involving a total of four payday lenders and a number of related entities and individuals. Combined with earlier settlements with the other two lenders—AMG Services Inc. and MNE Services Inc., both of which settled in early 2014—the FTC has collected a total of $25.5 million in fines. The case thus far has resulted in an estimated $353 million in waived debt, making it already the largest-ever recovery in an FTC payday lending case, with further litigation still ongoing.
The case stems from 2012, when the FTC filed federal charges in Nevada alleging that the defendants misrepresented how much loans would cost consumers by failing to accurately disclose annual percentage rates and other loan terms, in violation of the Truth in Lending Act. The FTC also accused the lenders of making preauthorized debits from consumers’ bank accounts a condition of the loans, in violation of the Electronic Funds Transfer Act. The settlements bar the lenders from “misrepresenting the terms of any loan product, including the payment schedule and interest rate, the total amount the consumer will owe, annual percentage rates or finance charges, and any other material facts,” the FTC said.
Federal regulators have set their sights on small-dollar credit over the past several years. Last year, the CFPB held a hearing on payday lending, during which the agency announced it was considering requiring lenders to ensure at the outset of each loan that the customer was not taking on unaffordable debt. Another CFPB plan would force lenders to comply with various restrictions to ensure that consumers affordably can repay their debt.